CONCENTRATION  AND 
CONTROL^^^ 

A.  SOLUTION  OF  THE  TRUST  PROBLEM 

IN  THE  UNITED  STATES 

CHARLES   R.VAN   HISE 


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CONCENTRATION  AND  CONTROL 

A  SOLUTION  OF  THE  TRUST  PROBLEM  IN  THE 
UNITED  STATES 


THE  MACMILLAN  COMPANY 

NEW  YORK   •    BOSTON   •    CHICAGO 
DALLAS   •    SAN    FRANCISCO 

MACMILLAN  &  CO.,  Limited 

LONDON   ■    BOMBAY   •    CALCUTTA 
MELBOURNE 

THE  MACMILLAN  CO.  OF  CANADA,  Ltd. 

TORONTO 


CONCENTRATIO]^  AND   COXTROL 

A  SOLUTION  OF  THE  TRUST  PROBLEM 
IN  THE  UNITED  STATES 


BY 


CHARLES  R.  VAN  HISE 

AUTHOR    OF    "CONSERVATION    OF    NATCRAL    RESOURCES 
IN    THE    UNITED    STATES,"    ETC. 


THE   MACMILLAN   COMPANY 
1912 

A.U  rights  renewed 


V3 


COPTSIQHT,    1912, 

By  the  MACMILLAN  COMPANY. 


Set  up  and  electrotyped.     Published  May,  1913, 


Nortooati  ^rrss 

J.  S.  Gushing  Co.  —  Berwick  &  Smith  Co. 

Norwood,  Mass.,  U.S.A. 


PREFACE 

This  book  is  one  of  opportunism.  Its  aim  is  to  present  an 
outline  picture  of  the  situation  regarding  concentration  of 
industry  in  the  United  States,  and  to  suggest  a  way  to  gain 
its  economic  advantages  and  at  the  same  time  to  guard  the 
interests  of  the  public.  The  book  is  written  because  this  is 
the  most  pressing  problem  now  before  the  people  and  before 
Congress  and  state  legislatvires.  No  other  problem  is  likely 
to  have  so  large  discussion  in  the  political  campaign  now 
waging.  If  this  book  has  the  good  fate  to  assist  in  the  rule 
of  enlightenment,  reason,  fair  play,  mutual  consideration,  and 
toleration,  and  thus  advance  the  solution  of  the  problem,  the 
author  will  have  been  repaid  many  fold  for  his  labor  in  its 
preparation. 

The  scope  of  the  treatment  does  not  include  the  public 
utilities.  They  are  only  considered  in  so  far  as  their  develop- 
ment and  control  throw  light  upon  the  other  industries. 

The  reader  who  is  familiar  with  trust  literature  will  recog- 
nize the  influence  of  Ely's  "Monopolies  and  Trusts,"  Jenks's 
*'  The  Trust  Problem,"  von  Halle's  "  Trusts  or  Industrial  Com- 
binations of  the  United  States,"  Ripley's  "  Trusts,  Pools,  and 
Corporations,"  Montague's  ''Trusts  of  To-day,"  Nolan's  Com- 
binations, Trusts,  and  Monopolies,"  Collier's  "Trusts,"  Wy man's 
"  Control  of  the  Market,"  and  Macrosty's  "  Trust  Movement 
in  British  Industry." 

Aside  from  these  standard  works,  the  most  important  sources 
of  information  in  presenting  a  picture  of  the  situation  as  it  is 
at  the  present  time  are  the  special  reports  on  manufactures 
in  1905  by  the  Census  Office,  reports  of  the  Commissioner  of 
Corporations  upon  Standard  Oil,  tobacco,  steel,  beef,  lumber,  and 
water  powers,  and  the  hearings  and  reports  before  the  com- 
mittees of  the  Sixty-second  Congress.  Especially  important 
in  this  connection  have  been  the  hearings  before  the  United 


vi  PREFACE 

States  Senate  Interstate  Commerce  Committee,  the  report  of 
Mr.  Hardick  for  the  special  Committee  of  the  House  of  Rep- 
resentatives to  investigate  the  Sugar  Refining  Industry,  and 
the  reports  of  the  House  Committee  of  Investigation  for  the 
United  States  Steel  Corporation. 

Further,  I  had  the  opportunity  to  see  the  manuscript  of  a 
book  now  published  by  Dr.  Charles  McCarthy,  upon  "  The  Wis- 
consin Idea,"  from  which  I  have  taken  material  concerning 
the  situation  in  that  state.  Professor  T.  K.  Urdahl  has  pre- 
pared for  insertion  a  summary  account  of  the  steel  combina- 
tions of  Germany.  Professor  Richard  T.  Ely  and  Professor 
Urdahl  have  kindly  read  the  manuscript  and  made  many 
suggestions  of  value  to  me.  Professor  E.  A.  Gilmore  has  done 
the  same  for  the  chapter  upon  the  law  regarding  cooperation. 
To  these  men  I  am  especially  indebted.  Also  I  have  had  many 
valuable  suggestions  from  other  members  of  the  staff  of  the 
University  of  Wisconsin  in  the  departments  of  political  science, 
political  economy,  history,  and  sociology.  Finally,  a  number  of 
the  students  in  that  university,  under  the  direction  of  Mr.  W.  I. 
King,  have  given  me  important  assistance  in  looking  up 
decisions  and  summarizing  material  along  special  lines ;  these 
are  S.  A.  Barrett,  W.  K.  Braasch,  Harlow  Brown,  F.  A. 
Buechel,  N.  B.  Bunin,  W.  H.  Butt,  J.  S.  Josiassen,  J.  C. 
Pritzlaff,  John  Schmidt,  R.  A.  Weir,  E.  E.  Witte. 

No  one  has  a  keener  realization  than  the  author  of  the 
imperfections  of  the  volume,  but  since  the  policies  of  the 
nation  concerning  concentration  are  now  under  consideration 
by  the  people,  promptness  in  publication  seems  to  be  more 
important  than  completeness  of  statement.  In  preparing  the 
book,  it  has  been  the  purpose  to  put  in  a  small  volume  the 
information  which  is  essential  to  reach  a  sound  conclusion 
regarding  the  handling  of  the  great  problem  of  concentrations 
of  industry,  both  in  the  way  of  legislation  and  administration. 
Following  a  statement  of  facts,  the  conclusions  of  the  author 
are  given  in  these  matters,  and  it  is  hoped  that  these  may 
appeal  to  the  judgment  of  the  reader.  However,  even  if  the 
conclusions  are  not  followed  in  all  respects,  it  is  still  hoped 
that  the  summary  of  facts  bearing  on  the  problem  of  concen- 
tration may  be  helpful. 


PREFACE  vii 

The  material  published  in  the  magazines  and  newspapers, 
even  much  of  the  testimony  before  the  committees  of  Congress, 
shows  a  lamentable  lack  of  comprehension  of  the  facts  in- 
volved in  concentration  of  industry,  and  in  many  cases  con- 
clusions are  presented  without  taking  into  account  more  than 
a  very  small  part  of  the  facts.  It  is  hoped  that  a  brief  and 
clear  presentation  of  the  more  important  factors  of  the  problem 
may  help  in  leading  to  logical  thinking,  and  thus  assist  in 
reaching  a  consensus  of  opinion  which  may  finally  result  in 

sound  remedial  legislation. 

CHARLES  R.  VAN  HISE. 

The  University  of  Wisconsin, 
April,  1912. 


TABLE   OF   CONTENTS 


Preface    

Introduction  : 

The  Self-sufiQcient  Community 

The  Civil  War  and  Concentration       .... 
The  Development  of  Transportation  and  Communication 


PAGE 
V 


CHAPTER  I 
THE  GENERAL  FACTS  EEGARDING  CONCENTRATION 
Section  1  —  The  Economic  Advantages  of  Concentration 


(1)  The  Handling  of  Material  . 

(2)  The  Use  of  Machinery  and  Departments 

(3)  Subdivision  of  Labor  .... 

(4)  Integration 

(5)  Parallel  Consolidation  and  Specialization 

(6)  Saving  By-products    .... 

(7)  Consolidation  of  Allied  Industries 

(8)  Keeping  Establishments  up  to  Date    . 

(9)  Investigating  Departments 

(10)  Business  Advantages  of  Concentration 

(11)  Opportunities  for  High  Order  of  Ability 

(12)  Other  Advantages  of  Concentration  . 
Total  Advantages  of  Concentration    . 


Section  2  —  The  Causes  of  Concentration 

(1)  The  Limited  Liability  Corporation 

(2)  The  Protective  Tariff  . 

(3)  Railvpay  Rebates  and  Drawbacks 

(4)  Local  Underselling 

(5)  Patents 

(6)  Manufacturers'  Rebates 
General  Statements  .... 


Section  3  —  The  Purposes  of  Concentration 

(1)  Elimination  of  Competition 

(2)  Regulation  of  Output  and  Division  of  Business 

tory 

(3)  Maintenance  of  Prices 

(4)  Profits  of  Promoters    .... 


and 


Terri 


9 
9 
9 
10 
11 
12 
12 
13 
14 
16 
17 
17 

21 
21 
21 
22 
23 
24 
24 
24 

25 
26 

26 
27 
27 


X  TABLE  OF  CONTENTS 

PAOK 

Section  4  —  The   Kinds  of  Business  Most  Likely  to  become 

Concentrated  .........  31 

Section  5  —  The  Extent  of  Concentration          ....  34 
Coucentration  in  Management  Greater  than  Concentration  in 

Plants 35 

Statistics  confined  to  Factory  Systems 36 

Localization  of  Industries   ........  35 

Concentration  in  Representative  Industries        ....  36 

General  Statements 58 

Section  6  —  Forms  of  Organizations 60 

(1)  Informal  or  Formal  Associations  for  the  General  Protec- 

tion or  Advancement  of  a  Business 60 

(2)  Formal  Agreements 64 

(3)  Trusts 68 

(4)  Holding  Corporations 69 

(5)  Complete  Merger 71 

General  Statements 71 

Section  7  —  The  Kinds  of  Competition 72 

(1)  Competition  in  Quality 72 

(2)  Competition  in  Price 74 

(3)  Competition  in  Service         .......  75 

Section  8 — The  Break-down  of  Competition     ....  76 

The  Faith  in  Competition 76 

The  Failure  of  Competition  adequately  to  regulate  Quality        .  76 

The  Failure  of  Competition  adequately  to  regulate  Price  .        .  78 

General  Statements 83 

Section  9  —  The  Wastes  of  Competition 88 

(1)  Expense  of  Salesmen 88 

(2)  Expense  of  Advertising 89 

(3)  Competition  and  Conservation 89 

The  Consumer  pays  for  the  "Wastes  of  Competition    ...  97 

Wastes  of  Competition  drive  to  Combination      ....  97 

Ruin  or  Combination ,99 

CHAPTER   II 

SOME     IMPORTANT    ILLUSTRATIONS     OF     CONCEN- 
TRATION 

Section  1  —  The  Michigan  Salt  Company 101 

Section  2  —  The  Standard  Oil  Company 104 

The  Rise  of  the  Company 104 

The  Monopolistic  Position  of  the  Company         ....  105 


TABLE  OF  CONTENTS  xi 

PAGE 

Margins  and  Profits 108 

Price  Discriminations 109 

Excessive  Profits 109 

Summary  of  Evils 110 

Section  3  —  The  United  State?  Steel  Corporation  .         .         .111 

Early  Consolidations Ill 

Causes  of  Consolidation 112 

Organization  of  the  Corporation 113 

Overcapitalization 115 

Earnings 117 

Proportion  of  Business 119 

Cost  of  Production 120 

The  Value  of  Iron  Ore 129 

Practices  of  the  Corporation 132 

The  EfiBciency  of  the  Corporation 134 

Relative  Efficiency  o^  Large  and  Small  Steel  Companies    .         .  136 

Relative  Efficiency  of  the  Large  Steel  Companies       .         .        .  138 

Summary  of  Evils 140 

Section  4  —  The  American  Tobacco  Company     ....  140 

History  of  Company 140 

Overcapitalization 142 

Illegitimate  Competition 143 

International  Combination 143 

Expansion  into  Allied  Businesses 144 

Concentration  of  Manufacture 144 

Excessive  Profits ...  145 

Monopoly  and  Competition 14G 

Summary  of  Evils 147 

Section  5  —  The  American  Sugar  Refining  Company        .         .  147 

Commanding  Position  of  the  Company 147 

Increase  in  Margins 148 

Price  of  Raw  Material 148 

Capitalization 149 

Excessive  Profits 149 

Evils  Illustrated 149 

Section  6  —  The  Meat-Packing  Industry 150 

The  "Big  Six" 150 

Capitalization  and  Profits 152 

Principles  Illustrated .        .  153 

Section  7 — The  Lumber  Industry       .        .        .                 ,        .  154 

The  General  Situation 154 


xii  TABLE  OF  CONTENTS 

PAGE 

Concentrated  Ownership  of  Timber 156 

Rising  Prices 159 

Section  8  —  The  Water  Powers 160 

Amount  and  Distribution 160 

Concentration  of  Ownership 162 

Public  Control 164 

CHAPTER  III 

THE   LAWS   REGARDING   COOPERATION 

Section  1  —  England 167 

Section  2  —  The  United  States 170 

Section  3  —  The  Sherman  Antitrust  Law 174 

The  Standard  Oil  Company 181 

The  American  Tobacco  Company 183 

The  DuPont  Powder  Company 187 

Dissolution  by  Mutual  Agreement 187 

Other  Corporations  under  Attack 189 

General  Statements 191 

Section  4  —  State  Legislation  against  Trusts  ....  192 

The  Statute  Laws 192 

Decisions  under  the  Statutes 197 

General  Statements 200 

CHAPTER  IV 

THE   SITUATION  IN  OTHER  COUNTRIES 

Section  1  —  England 203 

Section  2  —  Germany 206 

The  German  Steel  Combine 207 

The  Potash  Industry 218 

Section  3 — Austria 219 

Section  4  —  France 220 

Section  5  —  General  Statements 221 

Section  6  —  International  Combinations 222 

CHAPTER  V 

REMEDIES 

Section  1  —  Specifications  to  be  Met          .....  225 

Minimum  Specifications 231 


TABLE   OF  CONTENTS  xiii 

PAGE 

Section  2  —  Commission  Control  of  Public  Utilities        .         .  233 

Early  Commissions      .........  234 

The  Wisconsin  Commission 236 

The  Interstate  Commerce  Commission 238 

General  Statements 242 

Section  3 — Pure  Food  and  Drug  Laws 244 

Section  4  —  The  Creation  of  Trade  Commissions       .         .         .  248 

Section  5  —  Proposed     Minimum     Amendments     to    Antitrust 

Laws 249 

(1)  Business  of  a  Public  Interest         ......  249 

(2)  Cooperation  Reasonable        .......  250 

(3)  Competition  to  remain  Free          ......  252 

(4)  Unfair  Practices  should  be  Prohibited          ....  252 
General  Statements 252 

Section  6  —  Further  Extension  of  Power  of  Commissions       .  254 

(1)  Publicity  Required 255 

(2)  Regulation  of  Prices 255 

(3)  Conservation  Enforced 262 

(4)  Good  Social  Conditions  Securable        .....  263 

(5)  Fair  Wages  Realizable 264 

(6)  Control  of  Capitalization 265 

(7)  Delimitations  of  Powers  of  State  and  Nation        .         .        .  265 
General  Statements 265 

Section  7  —  Other   Plans   for  Amendment  to  Sherman  Anti- 
trust Law        .........  266 

Section  8  —  Patent  Monopoly 268 

Section  9  —  Possible  Objections  to  Plan  of  Regulation  Pro- 
posed        ..........  270 

Section  10  —  Conclusion 277 

Appendix  —  The  Sherman  Antitrust  Law            ....  279 


CONCENTRATION  AND  CONTROL 

INTRODUCTION 

The  history  of  industry  in  the  United  States  may  be  di- 
vided into  two  great  periods,  that  antecedent  to  the  Civil 
War  of  1861-1865,  and  that  following  this  conflict.     In  the 
years  preceding  the   Civil  War  the   Middle  West  became 
settled.     A  few  railroads  had  crept  as  far  west  as  the  Missis-  The  Civil 
sippi  River.     The  large  cities  east  of  that  great  north-south  ^q^jq^u'^.^^ 
water  thoroughfare  were  thus  connected.     The  railroads  were  trial  periods, 
wide  apart ;   their  efficiency  as  compared  with  present  times 
was  small.     West  of  the  Mississippi  River  the  population  was 
sparse.     That  part  of  the  country  was  still  in  its  frontier 
stage,  with  the  exception  of  portions  of  California  and  Oregon. 

Under  the  conditions  above  given  many  small  manufac- 
tories had  grown  up  to  meet  the  needs  of  the  communities 
in  which  they  existed.  Indeed  manufacture  in  a  small  way 
had  begun  in  the  eastern  cities  before  the  end  of  the  eighteenth 
century. 

During  the  first  half  of  the  nineteenth  century  there  was 
steady  and  slow  expansion  of  manufacture,  not  mainly  by 
increasing  the  size  of  plants  which  already  existed,  but  by 
the  multiplication  of  plants  wherever  a  clientele  was  found 
in  the  township,  county,  or  district.  Thus  in  the  Middle  West 
during  these  times  almost  every  community  had  its  gristmill 
run  by  the  power  of  the  adjacent  creek  or  small  river.  Simi- 
larly there  were  many  small  plants  for  the  smelting  of  iron. 
For  the  most  part  these  were  located  adjacent  to  small  banks 
of  iron  ore,  and  especially  in  districts  where  coal  and  lime- 
stone were  near  at  hand  to  serve  for  fuel  and  flux.  The  great 
drift  to  the  cities  had  not  yet  begun,  and  a  large  proportion  of 
the  population  was  rural,  87.5  per  cent  in  1850,  and  83.9  per 
cent  in  1860. 

B  1 


CONCENTRATION  AND  CONTROL 


THE   SELF-SUFFICIENT   COMMUNITY 


The  farmer  in  the  sparsely  settled  districts  of  the  Middle 

West  was  largely  self-sufficient.     For  heat  he  cut  his  own 

wood.    He  raised  his  own  wheat  and  corn,  took  the  same  to  the 

adjacent  mill  and  returned,  after  paying  proper  toll,  with  flour 

The  farm-      and  com  meal  for  his  family  and  bran  for  his  stock.     He 

stead  a  raised  and  killed  his  own  meat :   in  the  winter  he  had  fresh 

workshop. 

meat ;  in  the  summer,  salt  pork  and  corned  beef.  As  a  matter 
of  course  each  farmer  raised  his  own  vegetables ;  he  had  cows 
which  furnished  him  with  milk,  butter,  and  perhaps  cheese ; 
he  had  his  poultry  yard,  which  might  include  chickens, 
geese,  and  ducks.  The  farmer  of  the  North  produced  his  own 
wool  and  many  had  a  crop  of  flax.  In  the  South  cotton  was 
the  stable  for  textiles.  In  the  earlier  part  of  the  nineteenth 
century  the  wool  was  cleaned  and  carded  at  the  house,  but  at 
a  little  later  stage  of  development  was  taken  to  a  factory  in 
the  adjacent  small  town  to  be  cleaned  and  made  into  rolls 
ready  for  spinning.  The  equipment  of  the  farmer's  house 
included  the  spinning  wheel  and  often  the  loom.  With  spin- 
ning wheel  the  wool  and  flax  were  made  into  yarn  or  thread  to 
be  later  transformed  into  stocldngs,  mittens,  or  cloth.  The 
home  loom  produced  either  somewhat  coarse  cloth  or  car- 
pets. Cotton  very  early  f©und  its  way  to  the  factories, 
which  before  the  Civil  War  were  largely  located  along  the 
streams  of  New  England.  The  village  or  town  contained  a 
shoemaker,  whose  raw  material  frequently  came  from  leather 
supplied  by  the  farmer.  In  a  town  of  a  few  thousand  inhabit- 
ants, there  was  likely  to  be  a  small  agricultural  implement 
factory. 

Not  every  farmstead  would  have  all  of  the  equipment  indi- 
cated, but  all  would  be  found  in  the  neighborhood;  and  by 
barter  among  the  farmers,  or  trade  between  the  farmers  and 
the  villagers,  the  chief  necessities  not  produced  at  home  were 
supplied. 

The  articles  not  produced  in  a  community  were  mainly 
those  which  are  relatively  light  as  compared  with  their  value, 
sugar,  tea,  coffee,  starch,  tobacco,  and  cloth-cotton  or  woolen. 


INTRODUCTION  3 

These  were  the  staples  which  the  farmer  purchased  from  the 
sales  of  a  part  of  his  wheat  or  other  crop. 

From  the  above,  it  is  apparent  that  each  community  of  fair 
size  was  essentially  self-sufficient ;  and  this  was  true  without 
reference  to  the  different  parts  of  the  United  States,  although 
there  were  differences  as  to  the  approach  to  completeness  of 
the  self-sufficient  character  of  the  community,  the  approach 
to  this  situation  being  nearer  in  the  North  than  in  the  South. 
A  city,  and  in  many  cases  a  county,  if  cut  off  from  the  rest 
of  the  world  would  have  gotten  along  without  any  special 
hardship.  Some  luxuries  and  conveniences  would  have  been 
missed,  but  no  far-reaching  change  would  have  been  made  in 
the  habits  of  the  community. 

The  situation  above  described  has  now  ceased  to  exist  for 
the  United  States,  with  the  exception  of  those  communities 
which,  isolated  by  natural  barriers,  have  been  left  behind 
in  the  industrial  movement.  Some  such  communities 
have  remained  nearly  as  they  were  a  hundred  years  ago,  Self-suflS- 
not  affected  by  the  great  stream  of  progress  which  has  cient  com- 
moved  past  them.  In  the  coves  of  the  Great  Smoky  still  exist. 
Mountains  to-day  may  be  found  essentially  the  situation 
described,  and  that  not  more  than  twenty  or  thirty  miles 
from  a  city  of  considerable  size,  for  instance.  Cades  and 
Tuckaleeche  coves,  a  short  distance  east  of  Knoxville.  In 
one  of  those  coves,  only  a  few  years  ago,  I  saw  upon  the  porch 
of  a  little  cabin  the  complete  change  from  wool  to  stockings 
going  on  at  the  same  time,  one  of  the  three  daughters  card- 
ing the  wool,  the  second  spinning  it  into  hard  yarn,  and  the 
third  knitting  it  into  stockings.  What  is  true  for  the  coves  in 
this  country  still  obtains  for  great  regions  in  less-developed 
countries.  For  instance,  in  Brazil,  in  the  province  of  Minas 
Geraes,  the  people  are  substantially  self-sufficient.  The  ar- 
ticles which  they  raise  are  not  the  same  as  those  produced 
in  the  United  States.  Their  products  are  beans,  bananas, 
other  fruits,  tobacco,  coffee,  etc.  In  the  district  are  still 
ruiming  many  small  bloomeries  for  the  manufacture  of  iron, 
the  most  primitive  type  known  to  man.  From  the  blooms 
are  wrought  iron  for  rods,  nails,  horseshoes,  etc.     The  walls 


4  CONCENTRATION  AND  CONTROL 

of  the  houses  are  constructed  of  a  lacework  of  poles  between 
which  mud  is  filled  in,  and  the  roof  is  of  tile  burned  from  clay 
close  at  hand. 

THE   CIVIL  WAR  AND   CONCENTRATION 

In  the  United  States,  before  the  Civil  War,  industry  was  dis- 
persed, the  shops  and  factories  being  small ;  indeed,  every 
farm  to  a  considerable  extent  was  a  shop  and  factory.  In  any 
community  the  shops  and  factories  mainly  supplied  the  needs 
of  the  people. 

The  Civil  War,  the  most  gigantic  strife  which  to  that  time 
had  existed  among  men,  required  that  things  be  done  on  a 
great  scale.  More  than  a  million  and  a  half  of  men  were  in 
the  field  at  one  time  from  the  North  and  the  South  together. 
The  North  built  up  the  greatest  navy  that  the  world  had  then 
seen.  The  great  armies  required  similar  equipment  for  more 
than  a  million  men,  —  a  million  blankets,  a  million  muskets, 
etc.  The  artillery  required  great  quantities  of  iron,  and  the 
newly  devised  monitors  more.  Metal  was  used  upon  a  scale 
never  before  approached  in  this  country.  Above  all,  the  mil- 
lion men  must  be  fed.  Thus  as  a  result  of  the  demands  of 
civil  strife  the  large  manufactory  grew  up  especially  adapted 
to  producing  the  materials  and  munitions  of  war.  These 
supplies  must  be  transported  to  serve  a  vast  and  shifting  army. 

But  even  more  important  than  the  great  factory  was  the 
training  of  many  thousands  of  men,  both  South  and  North, 
to  do  things  in  a  large  way  through  the  use  of  a  multitude  of 
men,  in  order  that  a  given  big  result  might  be  reached  at  a 
definite  time  and  place. 

One  of  the  most  far-reaching  effects  of  the  Civil  War  was 
the  acceleration  of  concentration  under  the  tremendous 
necessity  to  do  things  on  a  great  scale. 


THE  DEVELOPMENT   OF   TRANSPORTATION   AND 
COMMUNICATION 

Beginning  with  the  Civil  War  the  period  of  concentration 
in  industry  was  on;    but  a  condition  precedent  to  its  full 


INTRODUCTION 


growth  was  the  development  of  transportation  and  communi- 
cation. 

Following  the  Civil  War  came  the  time  of  great  railway 
building.  The  increase  in  the  number  of  miles  of  railway  in 
the  United  States  by  decades  from  1850  to  1910  and  the  per- 
centages of  increase  per  decade  are  shown  by  the  following 
table :  — 

Table  1.     Railway  Extension  bt  Decades  since  1850  * 


Year 

Miles 

Peb  Cent 

1850-1860 

89,012  to  36,626 

306.0 

1860-1870 

36,62610  52,922 

44.4 

1870-1880 

52,922  to  93,262 

76.3 

1880-1890 

93,262  to  166,703 

78.7 

1890-1900 

166,703  to  194,262 

16.4 

1900-1909 

194,262  to  238,356 

22.6 

Concurrently  with  the  expansion  of  the  railways  was  the 
extension  of  the  telegraph  lines,  and  finally,  with  the  centennial 
exhibition  in  1876,  came  the  telephone.  When  the  Union 
Pacific  Railroad  was  completed  in  1869,  it  was  thought  to  be  a 
mighty  achievement ;  and  it  was  accomplished  only  through 
liberal,  indeed  extravagant,  federal  grants  and  guaranties. 
At  the  present  time  there  are  six  continental  roads  stretching 
from  the  Mississippi  to  the  Pacific  coast.  Also  the  increase 
in  the  railway  mileage  east  of  the  Mississippi  has  gone  on  with 
accelerating  speed. 

Thus  the  country  is  now  linked  together  by  agencies  of 
transportation  and  communication.  A  large  proportion  of  Railways 
the  population  lives  within  a  half  dozen  miles  from  a  rail-  everywhere, 
way ;  it  is  only  in  the  sparsely  settled  sections  of  the  country 
that  a  railway  is  ten  or  twenty  miles  distant.  Railway  speeds 
and  weights  have  been  increased.  A  few  trains  move  pas- 
sengers and  the  more  valuable  freight  a  thousand  miles  in 
twenty-four  hours.  A  single  train  with  one  locomotive 
may  carry  five  thousand  tons  of  iron  ore.  The  telegraph  and 
the  telephone  make  communication  instantaneous. 

^  Poor's  "Manual  of  Railroads,"  1910. 


CONCENTRATION  AND  CONTROL 


Decreasing 
freights. 


Navigable 
streams. 


The  vanish- 
ing water 
traflBc. 


The  freight  and  passenger  rates  have  steadily  fallen. 
In  1864,  the  charge  on  a  bushel  of  wheat,  in  carload  lots, 
from  Chicago  to  New  York,  was  from  48  to  96  cents;  in 
1902,  7.8  to  9.6  cents,  one  sixth  to  one  tenth  as  much. 
The  heavier,  cheaper  products,  such  as  coal  and  iron  ore  are 
transported  in  great  quantities  at  a  cost  of  about  one  fifth 
of  a  cent  per  ton  mile,  and  the  rates  for  such  commodities  at 
various  places  are  less  than  one  half  a  cent  a  ton  mile.  It  may 
cost  the  farmer  who  lives  twenty  miles  from  a  railroad  more 
to  get  his  wheat  to  the  station  than  it  does  from  the  railroad 
point  to  the  central  market. 

It  is  not  meant  to  imply  that  the  railways  are  the  only  means 
of  transportation,  although  from  the  present  pomt  of  view 
they  are  dominant 

Before  railways  existed,  navigable  streams  furnished  means 
of  communication  and  transportation  for  commodities  heavy 
and  light  for  those  communities  which  were  fortunate  enough 
to  be  thus  reached.  Thus  there  grew  up  in  the  early  part  of 
the  nineteenth  century  a  great  traffic  upon  the  Mississippi, 
Ohio,  and  upon  many  other  rivers  of  smaller  size.  The 
Great  Lakes  furnished  cheap  transportation  from  Buffalo  to 
Chicago  and  the  head  of  Lake  Superior.  Inevitably,  settle- 
ment and  development  proceeded  much  more  rapidly  along  the 
naturally  navigable  waters  than  elsewhere.  But  even  where 
the  conditions  were  most  favorable,  navigable  waters  fur- 
nished transportation  facilities  to  only  a  small  part  of  the 
country,  and  for  that  part  at  a  very  low  speed. 

The  next  stage  in  transportation  development  was  the 
system  of  canals.  The  Erie  Canal  connected  the  Hudson  and 
the  Great  Lakes.  Many  other  less  important  canals  were 
built.  But  even  at  best  the  construction  of  canals  was  expen- 
sive ;  the  transportation  of  materials  upon  them  slow ;  and 
only  a  small  part  of  the  country  was  ever  reached  by  them. 
With  the  era  of  railroad  development,  canals  began  to  wane. 
Many  of  them  were  acquired  by  railroad  companies  and  put 
out  of  commission.  Upon  the  Mississippi  itself,  through  the 
acquisition  of  terminals,  purchasing  boat  lines,  cutting  rates, 
refusing  to  prorate,  etc.  the  railroad  companies  have  reduced 


INTRODUCTION  7 

river  transportation  above  St.  Louis  almost  to  a  negligible 
quantity. 

The  country  as  a  whole,  even  at  the  present  time,  has 
very  few  good  highways.  Only  a  few  sections  of  the 
country  have  well-made  roads.  Before  the  Civil  War,  and 
locally  since,  until  our  own  time,  toll  roads  have  connected 
some  of  the  great  cities.  Upon  the  toll  and  free  public 
roads  wheel  vehicles  move ;  but  before  the  automobile 
appeared  speeds  were  limited  to  ten  miles  per  hour,  and 
quantities  to  a  few  tons  per  load.  Consequently,  by  1875 
railroads  had  a  leading  place  in  transportation  in  this 
country,  and  they  are  now  dominant. 

It  is  not  meant  to  imply  that  the  development  of  transporta-  Transporta- 
tion went  on  without  concentration  of  industry  taking  place  *^°°  ^°"^ 

.  ,  concentra- 

at  the  same  time.  Naturall}^  there  was  action  and  reaction  tion. 
between  them.  Without  concentration  of  industry  and,  con- 
sequently, large  amounts  of  goods  to  ship,  the  railroads 
would  not  have  developed  so  rapidly ;  and  on  the  other 
hand,  without  the  development  of  transportation  and 
communication,  concentration  of  industry  would  have  been 
impossible. 

The  development  of  transportation  and  communication 
furnished  the  fundamental  basis  for  concentration  of  industry, 
because  through  them  it  became  possible  at  a  moderate  cost 
to  transport  goods  long  distances  in  a  short  time  and  easy  to 
communicate  with  the  customer  who  desired  goods.  As  soon 
as  the  freight  rates  became  sufficiently  low  so  that  the  advan- 
tages of  concentration  were  greater  than  the  cost  of  freight 
and  doing  business  at  a  distance,  the  small  concerns  began  to 
suffer  in  competition  with  the  large  manufactory. 

My  treatment  of  the  subject  of  concentration  and  control 
will  be  divided  into  five  chapters:  I,  The  General  Facts 
regarding  Concentration;  II,  Some  Important  Illustra- 
tions of  Concentration ;  III,  The  Laws  Regarding  Coopera- 
tion; IV,  The  Situation  in  Other  Countries;  and  V, 
Remedies. 


CHAPTER  I 

THE  GENERAL  FACTS  REGARDING  CONCEN- 
TRATION 

The  general  facts  regarding  concentration  of  industry  wall 
be  considered  under  the  sections :  1,  The  economic  advantages 
of  concentration ;  2,  The  causes  of  concentration ;  3,  The  pur- 
poses of  concentration ;  4,  The  kinds  of  business  most  likely 
to  become  concentrated;  5,  The  extent  of  concentration; 
6,  The  forms  of  organization ;  7,  The  kinds  of  competition ; 
8,  The  break-dowTi  of  competition ;  9,  The  wastes  of  com- 
petition. 

Section  1 

THE  ECONOMIC  ADVANTAGES  OF  CONCENTRATION 

What  are  the  economic  advantages  of  manufacturing  in  a 
large  plant  and  doing  business  on  a  large  scale,  and  how  im- 
portant are  they?  Different  industries  differ  among  them- 
selves very  greatly  in  these  respects,  and  any  general  state- 
ment will  need  modification  when  appHed  to  a  particular  case. 
What  is  said  will  be  more  applicable  to  those  groups  of  indus- 
tries which  are  better  adapted  for  concentration. 

(1)  The  Handling  of  Material.  —  The  handling  of  material 
on  a  large  scale  in  itself  gives  great  economy.  In  any  manu- 
factory the  material  must  be  there  assembled.  For  instance, 
if  it  be  an  iron  manufactory,  and  we  have  a  primitive  bloom- 
ery  depending  upon  an  adjacent  bank  of  ore,  it  will  not  pay  to 
go  to  any  great  expense  in  providing  for  transportation  of  the 
ore  to  the  bloomery;  and  the  ore  will  be  hauled  in  a  cart. 
When  the  bloomery  changes  to  the  blast  furnace,  the  quantity 
of  ore  needed  will  be  so  great  that  the  ore  is  brought  with 
trams  or  some  kind  of  mechanical  haulage.     The  same  is 

8 


FACTS  REGARDING  CONCENTRATION    9 

true  of  the  coal.  Thus  the  economies  due  to  mere  magnitude 
of  operation  in  this  industry  become  very  great.  Also  in  the 
manufacturing  process  itself  the  large  furnace  has  an  advan- 
tage in  economy  of  fuel  and  efficiency  over  the  small  furnace. 

(2)  The  Use  of  Machinery  and  Departments.  —  In  the  large 
manufactory  it  is  possible  to  use  machinery  to  an  extent  not 
possible  in  the  small  establishment.  The  introduction  of 
labor-saving  machines  is  well  known  to  be  one  of  the  greatest 
causes  of  economic  efficienc5^  The  illustration  of  the  cotton 
gin  is  classic.  Where  there  are  many  processes  in  the  manu- 
facture of  an  article,  if  the  concern  be  a  large  one,  it  is  possible 
to  have  a  separate  machine  or  a  number  of  them  for  each 
process. 

Similarly  for  different  departments.  In  making  agri- 
cultural implements,  if  the  plant  be  a  large  one,  the  iron 
and  wood  departments  will  be  separate.  These  again  will 
be  specialized  for  different  lines  of  work.  The  parts  of 
iron  and  wood  T\'ill  be  assembled  in  another  department ; 
and  finally  the  painting  and  varnishing  will  be  done  in  still 
another. 

(3)  Subdivision  of  Labor.  —  In  most  manufactories  an 
article  must  go  through  many  processes  before  it  is  completed. 
In  the  old  primitive  shop,  the  shoemaker  at  the  bench  did  all 
of  the  different  stages  of  work  in  making  the  entire  shoe.  In 
the  large  manufactory  the  part  that  any  one  man  does  has 
been  steadily  lessened  until  now  in  the  making  of  a  single 
shoe  many  persons  participate.  In  the  making  of  a  wagon  or 
a  binder  in  a  large  manufactory  scores  of  people  take  part. 
In  the  wagon  shop  which  served  the  country  community 
one  man,  or  one  man  with  his  helper,  made  the  wagon  in  all 
its  parts  except  that  the  iron  in  bars  or  rods  was  furnished  to 
him.  Specialization  of  labor  is  only  possible  in  the  large 
manufactorj',  and  it  is  generally  agreed  that  such  specializa- 
tion gives  increased  efficiency. 

(4)  Integration.  —  A  further  step  in  the  development  of 
concentration  of  industry  is  its  integration;  that  is,  a  cor- 
poration handles  not  one  stage  of  manufacture  only,  but  a 
number  or  even  all  of  the  stages  from  the  raw  material  to  the 


10  CONCENTRATION  AND  CONTROL 

finished  product.  This  again  gives  increased  economy  and 
efficiency,  because  all  the  different  units  of  the  integrated  in- 
dustry are  in  harmony,  one  with  reference  to  the  other. 
Thus  the  United  States  Steel  Corporation  mines  its  raw 
materials,  assembles  them,  smelts  the  ore  into  pig  iron, 
changes  the  iron  to  steel,  and  the  steel  into  structural 
forms,  —  plate,  wire,  or  nail.  Other  illustrations  of  in- 
tegrated industries  are  oil,  sugar,  etc.,  described  pp.  104-150. 

While  there  is  great  economic  advantage  in  integration  for 
almost  every  industry,  that  of  iron  and  steel  furnishes  one  of 
the  best  illustrations.  When  the  blast  furnace  was  inde- 
pendent of  the  converter,  the  molten  pig  iron  was  allowed  to 
cool,  and  was  melted  for  the  Bessemer  converter.  The  steel 
from  the  converter  was  again  allowed  to  cool  in  the  ingot  and 
was  reheated  before  rolling  into  the  rail.  At  the  present  time 
the  molten  pig  iron  goes  to  the  converter,  is  transformed  into 
steel,  and  then  after  solidification  but  before  cooling  goes  to 
the  rolls  where  it  is  wrought  into  rails.  Similar  methods  are 
introduced  for  other  products.  The  saving  of  energy  by  in- 
tegration is  great,  as  is  also  the  saving  in  labor.  Independent 
blast  furnaces,  Bessemer  converters,  and  rolling  mills  cannot 
possibly  give  the  economic  efficiency  of  integrated  establish- 
ments combining  the  three. 

(5)  Parallel  Consolidation  and  Specialization.  —  The  con- 
centration of  management  goes  not  only  to  the  point  of  the 
manufacture  on  a  large  scale,  integration,  and  saving  of  by- 
products, but  extends  to  the  point  of  ownership  of  manufac- 
tories of  the  same  general  kinds  at  various  points.  Under 
these  conditions  it  is  possible  to  make  the  same  product  at 
the  different  plants,  or  to  specialize  the  different  manufacto- 
ries under  the  same  organization  so  that  one  shall  handle  one 
line  of  work,  and  another  another.  Further,  the  work  of  any 
one  branch  may  become  standardized  and  require  com- 
paratively little  shifting  or  changing  of  machines.  Thus  the 
shapes,  forms,  and  sizes  of  the  manufactured  iron  which 
comes  from  a  given  plant  may  remain  the  same  month  after 
month,  or  even  year  after  year ;  and  this  very  greatly  pro- 
motes efficiency.     If  the  industry  be  tobacco,  one  manufac- 


FACTS  REGARDING  CONCENTRATION        11 

tory  may  produce  cigarettes,  and  another  cigars.  A  proof 
of  the  superior  efficiency  of  completely  equipped  concerns  is 
fully  admitted  in  the  case  of  tobacco,  as  is  shown  by  the 
objections  filed  by  Messrs.  Brandeis  and  Levy  against  the 
plan  of  disintegration  of  the  American  Tobacco  Company 
(see  pp.  183-187).  As  counsels  for  the  independent  com- 
panies they  say  that  no  independent  tobacco  company  is 
now  completely  equipped  to  do  tobacco  business  covering 
all  the  main  branches  of  the  tobacco  trade,  and  that  any 
plan  to  restore  competition  will  be  ineffective  which  does  not 
compel  each  of  the  elements  of  the  disintegrated  tobacco 
company  to  confine  itself  to  one  line  of  business.  They 
state :  "It  follows  that  any  corporation  taking  over  a  part 
of  the  plug  tobacco  business  or  smoking  tobacco  business  of 
the  trust  shall  not  take  over  any  of  the  cigarette  or  cigar 
business;  that  a  corporation  taking  over  a  part  of  its  cig- 
arette business  shall  not  take  over  any  of  its  smoking  to- 
bacco business,  plug  tobacco  business,  or  cigar  business; 
and  that  a  corporation  taking  over  any  part  of  the  cigar 
business  shall  not  take  over  any  of  its  smoking  tobacco 
business,  plug  tobacco  business,  or  cigarette  business."  ^ 
There  can  scarcely  be  stronger  evidence  of  the  economic 
efficiency  of  parallel  consolidation  and  specialization  under 
a  single  corporation  than  the  above  remonstrance  of  Messrs. 
Brandeis  and  Levy  upon  behalf  of  the  independent  tobacco 
companies. 

The  consolidation  in  management  of  plants  making  the 
same  class  of  products  at  different  points  is  especially  eco- 
nomical for  those  articles  in  which  transportation  is  an  im- 
portant factor.  Cross  freights  are  avoided  to  a  large  extent 
when  the  manufactories  of  one  district  supply  the  markets  of 
that  district.  For  articles  which  are  heavy  as  compared 
with  their  cost,  for  instance  salt  and  steel  rails,  this  factor 
may  be  one  of  controlling  importance. 

(6)  Saving  By-products.  —  A  further  advantage  of  magni- 
tude is  the  use  of  by-products.     The  small  manufactory 

'  Hearings  before  the  Committee  on  Interstate  Commerce  United  States 
Senate,  Part  VII,  p.  319. 


12  CONCENTRATION   AND  CONTROL 

cannot  spend  much  money  in  such  utilization,  although  the 
coarser  of  them  may  be  saved.  In  the  production  of  meat,  the 
by-products, —  hides,  fat,  bone,  etc.  are  a  very  important  part 
of  the  income.  These  materials  are  much  more  largely  util- 
ized in  the  large  abattoir  than  in  the  small  slaughter-house. 

For  the  great  oil  refiners,  if  kerosene  be  regarded  as  the  chief, 
as  it  was  the  original  product,  then  lubricating  oil  and  gaso- 
line are  by-products.  Also  in  addition  to  these  scores  of 
other  by-products  are  saved.  In  fact  for  all  chemical  and 
metallurgical  industries  by-products  are  the  source  of  a  large 
part  of  the  profits.  But  to  save  these  materials  economically 
requires  large  scale  manufacture, 

(7)  Consolidation  of  Allied  Industries.  —  The  final  stage  in 
consolidation  is  the  union  of  allied  and  connected  industries. 
This  frequently  goes  beyond  integration,  in  that  the  lines  of 
manufacture  are  absorbed  which  use  as  raw  material  the 
by-products  of  the  central  organization.  Thus  the  United 
States  Steel  Corporation  has  begun  the  manufacture  of 
cement,  using  slag,  a  by-product  of  the  blast  furnace,  for 
that  purpose ;  but  the  manufacture  of  cement  is  itself  a  great 
industry  which  requires  a  large  and  expensive  plant,  and  slag 
is  therefore  a  by-product  which  it  is  not  possible  to  save  ex- 
cept in  plants  of  great  magnitude. 

The  big  beef  firms  have  entered  lines  of  business  related 
to  their  own.  Those  having  refrigerator  cars  have  begun  the 
transportation  of  fruit.  They  are  largely  interested  in  the 
stockyards.  In  order  to  use  the  by-products  the  packing 
house  companies  have  formed  fertilizer  companies,  soap 
companies,  glue  companies,  curled  hair  companies,  and  felt 
companies ;  all  of  which  industries  are  large  users  of  materials 
furnished  by  the  packing  industry. 

(8)  Keeping  Establishments  Up  to  Date.  —  The  large  com- 
pany uses  only  the  most  modern  manufactories  which  have 
complete  and  highly  efficient  rhachinery  and  practices,  in- 
cluding the  latest  labor-saving  devices  and  the  best  technical 
improvements.  The  weak  company  will  frequently  con- 
tinue to  use  an  inadequate  plant  because  it  has  not  and 
cannot  get  sufficient  capital  to  put  its  plant  into  an  up-to-date 


FACTS  REGARDING   CONCENTRATION         13 

condition.  The  American  Sugar  Refining  Company  after 
organization  built  one  large  new  plant  fully  equipped  with  the 
most  modern  machinery,  simply  as  a  safeguard  in  case  of  in- 
creased demand  or  stoppage  of  other  factories.  Shortly 
after  it  abandoned  altogether  a  number  of  refineries  acquired 
at  the  time  of  consolidation,  because  of  their  inefficient  equip- 
ment or  disadvantageous  location,  or  both. 

(9)  Investigating  Departments.  —  Not  only  is  the  large 
organization  able  to  use  the  most  modern  methods,  but  it  is 
able  to  have  an  investigating  department  in  order  that  dis- 
coveries may  be  made  for  still  further  improvements.  The 
economies  which  have  come  from  such  a  department  are 
strongly  emphasized  by  many  men  connected  with  great 
organizations.  The  Cotton  Oil  Company  has  an  experiment 
station.  The  Standard  Oil  Company  carries  on  chemical 
investigations  of  the  most  elaborate  and  extensive  kind  in 
order  to  utilize  fully  the  by-products  of  the  oil ;  as  a  result 
of  which  they  have  on  the  market  some  three  hundred  by- 
products, many  of  which  come  from  the  part  of  the  oil  which 
otherwise  would  have  been  thro'^n  away.^  The  United 
States  Steel  Corporation,  the  General  Electric  Company, 
and  indeed  practically  all  great  organizations  have  inves- 
tigating departments  in  which  large  sums  of  money  are  spent. 

Mr.  Louis  Brandeis,^  who  is  strongly  opposed  to  the 
existence  of  large  concentrations,  recognizes  the  economic 
advantage  of  investigative  departments  to  be  so  great 
as  to  threaten  the  practicability  of  retaining  relatively 
small  industrial  units  under  the  competitive  system ;  this  is 
shown  by  the  fact  that  he  urges  that  all  investigations  which 
are  necessary  for  the  advancement  of  applied  science  should 
be  carried  on  by  the  government.  Apparently,  he  does  not 
realize  the  enormous  expense  that  this  proposal,  if  taken 
seriously,  would  entail.  Says  Mr.  Brandeis,  "Whenever  in- 
dustry requires  for  its  advance  investigations  of  the  character 
which  are  so  expensive  that  only  a  huge  concern  can  assume 

1  Ernst  von  Halle,  "Trusts  or  Industrial  Combinations  in  the  United 
States,"  pp.  66-67. 

'  Hearings  before  the  United  States  Senate  Committee  on  Interstate  Com- 
merce, Part  XVI,  p.  1169. 


14  CONCENTRATION  AND  CONTROL 

the  burden,  then  it  is  the  government's  function  to  secure  the 
information  for  all  the  people." 

In  favor  of  this  position  he  cites  the  investigations  by  the 
government  for  the  farmer.  This  illustration  seems  scarcely 
applicable,  since  the  most  distinctive  feature  of  the  farmer's 
business  is  the  vast  number  of  those  following  it  and  the  av- 
erage smallness  of  a  single  holding  of  land.  Because  of  this 
the  individual  farmer  is  wholly  incapable  of  carrying  on  the 
necessary  investigations.  Hence  the  government,  national 
and  state,  has  undertaken  the  function.  The  proposal  of 
Mr.  Brandeis,  if  carried  to  its  logical  conclusion,  would  blot 
out,  or  at  least  profoundly  modify,  our  patent  system,  under 
which  discoverers  are  protected  to  the  extent  of  monopolistic 
use  for  a  limited  period.  No  stronger  testimony  than  the 
proposal  of  Mr.  Brandeis  could  be  given  as  to  the  economic 
advantage  of  concentration  of  industry  gained  through 
investigating  departments. 

(10)  Business  Advantages  of  Concentration.  —  Thus  far  the 
industrial  advantages  of  concentration  only  have  been 
given.  Upon  the  business  side  there  are  also  great  economies. 
Some  of  the  more  important  of  these  are  as  follows :  — 

(a)  Big  organizations  are  able  to  buy  in  large  quantities 
and  thus  gain  the  advantages  of  the  lowest  rates  of  purchase. 

(6)  Big  organizations  are  able  to  sell  in  large  quantities 
and  most  advantageously.  A  large  part  of  the  cost  of  busi- 
ness under  new  conditions  is  the  marketing  of  products. 
In  the  marketing  there  are  great  costs  in  commercial  travel- 
ers, in  advertisements,  etc.  (see  p.  89).  With  the  large 
concentration  the  advertising  cost  per  unit  of  sale  is  much 
lower  than  with  the  small  industry.  Work  is  organized  so 
that  a  traveling  salesman  or  agent  does  the  work  in  a  given 
Marketing  community  for  a  large  concern  instead  of  several  for  the  dif- 
pro  ucts.  fgrent  plants  of  that  concern.  When  the  American  Steel 
Hoop  and  Wire  Company  was  formed,  about  two  hundred 
salesmen  were  discharged.  Similarly  with  the  formation  of 
the  whisky  combination  three  hundred  salesmen  were  spared. 
With  the  organization  of  the  International  Harvester  Company 
the  expense  of  marketing  was  reduced  by  $500,000  a  year. 


FACTS  REGARDING   CONCENTRATION        15 

(c)  When  there  is  a  single  great  federated  estabhshment, 
orders  can  be  received  at  a  central  office  and  from  that  office 
distributed  to  the  different  plants  as  best  required  by  effi- 
ciency in  manufacture,  taking  into  account  the  expense  of 
transportation. 

(d)  Also  the  mere  size  of  an  establishment,  so  that  it  may 
be  able  to  take  a  large  order  at  almost  any  time  and  fill  it 
promptly,  gives  a  great  advantage  over  smaller  concerns. 

(e)  For  entering  foreign  trade  the  business  economies  of 
concentration  are  undoubtedly  very  great.     Sending  agents 

to  foreign  countries  to  build  up  a  trade  for  an  industry  is  an  Foreign 
expensive  undertaking.     Especially  is  tliis  the  case  when  the  ^^^'^^  ^^^ 

1  11-1  ■  r  r        ■  •  concentra- 

markets  are  already  m  the  possession  of  foreign  competitors,  tion. 
In  this  respect  the  great  corporations  of  the  country,  such  as 
the  United  States  Steel  Corporation  and  Standard  Oil  Com- 
pany, have  proved  themselves  to  be  economically  superior  to 
smaller  organizations,  more  than  90  per  cent  of  the  export 
business  in  their  respective  lines  being  done  by  United  States 
Steel  and  Standard  Oil.  Moreover,  the  foreign  trade  in  iron 
and  oil  has  been  almost  wholly  built  up  since  the  organization 
of  the  steel  combination  and  the  Standard  Oil  Company. 

(/)  The  losses  through  poor  debts  are  less  with  large 
organizations  than  with  small  ones.  Frequently  where  there 
are  many  organizations  having  keen  competition  with  a  large 
number  of  travelling  salesmen,  sales  are  made  without  careful 
reference  to  the  ability  of  the  purchaser  to  pay.  To  illustrate, 
it  is  stated  that  after  the  American  Steel  and  Wire  Company 
was  formed,  the  loss  from  bad  debts  for  the  constituent  com- 
panies was  reduced  from  one  half  of  one  per  cent  to  one 
twentyfifth  of  one  per  cent.^ 

(g)  One  of  the  greatest  advantages  of  concentration  with 
cooperation  of  the  independent  units  is  the  regulation  of 
production.  As  we  shall  see  in  other  connections,  "wdth  the  Regulation 
competitive  system,  underproduction  alternates  with  over-  of  output, 
building  and  overproduction.  Where  instead  of  fierce  compe- 
tition there  is  cooperation  (and  this  is  only  possible  where 
there  are  large  units),  the  great  losses  are  avoided  which  re- 

1  "Truata  of  To-day,"  G.  H.  Montague,  p.  43. 


16  CONCENTRATION   AND  CONTROL 

suit  from  investments  of  capital  in  manufactories  which  run 
only  a  portion  of  the  time  and  before  they  shut  down  produce 
more  goods  than  can  be  sold  at  a  profit. 

(h)  Another  advantage  of  concentration  is  that  a  less 
amount  of  capital  is  necessary  in  order  to  handle  a  combined 
business  than  would  be  necessary  if  a  great  organization 
Efficiency  of  Were  subdivided.  If  a  concern  be  fairly  independent  of  the 
capital.  banks  and  the  necessity  to  pay  excessive  rates  of  interest,  it 

must  keep  a  considerable  amount  of  ready  cash  on  hand  to 
handle  its  business.  A  very  large  concern,  in  which  the 
variation  in  the  demands  for  the  d  fferent  products  compen- 
sate for  one  another  to  some  extent  at  least,  is  able  to  handle 
its  business  with  a  relatively  small  cash  reserve.  This  is  one 
of  the  advantages  which  the  United  States  Steel  Corporation 
has  had  since  its  organization.  By  keeping  from  $50,000,000 
to  $75,000,000  in  cash,  a  very  large  amount  as  a  whole,  but 
rather  small  as  compared  with  its  total  business,  the  corpora- 
tion has  always  had  sufficient  money  on  hand  to  meet  its 
needs  without  borrowing,  and  therefore  has  been  independent 
of  the  banks  at  times  of  financial  depression. 

(11)  Opportunity  for  High  Order  of  Ability.  —  It  may  be 
that  a  final  advantage  of  concentration  will  be  the  opportu- 
nity for  the  display  of  ability  of  the  highest  order.  A  farmer 
who  can  successfully  run  a  dairy  with  twenty  cows  may  fail 
with  a  hundred.  A  man  who  can  handle  a  single  manu- 
factory may  be  unable  to  see  the  broader  comparative  aspects 
of  a  dozen.  The  manager  of  each  factory  will  be  required  as 
before;  but  also  there  will  be  needed  the  man  who,  while 
giving  large  liberty  to  the  individual  manager,  will  see  the 
work  of  the  whole  in  its  broader  relations.  Concentration  of 
industry  will  demand  the  highest  and  best  trained  intellect 
along  all  lines. 

Says  Macrosty  ^ :  "  Rule  of  thumb  is  dead  in  the  workshop, 
the  day  is  with  the  engineer  and  the  chemist  with  their 
methods  of  precision ;  in  the  countinghouse  and  board  room 
there  is  no  longer  a  place  for  the  huckster  or  gambler,  the 
future  is  with  the  commercial  statesman  whether  in  a  large 
individual  business  or  a  combination." 

1  "The  Trust  Movement  in  British  Industry,"  H.  W.  Macrosty,  p.  337. 


FACTS   REGARDING  CONCENTRATION        17 

(12)  Other  Advantages  of  Concentration.  —  Other  advan- 
tages of  concentration  are  frequently  claimed.  Among  these 
are:  steady  employment  of  labor,  better  wages,  better 
protection  against  industrial  accidents,  the  maintenance  of 
superior  quality,  etc.  These  points  are  not  here  introduced 
as  advantages  of  concentration,  since  in  reference  to  them 
there  is  a  marked  difference  of  opinion.  In  some  cases  it 
appears  that  concentration  of  industry  has  led  to  the  steadier 
employment  of  labor,  improvement  in  wages,  and  lessening  Wages  and 
of  industrial  accidents.  In  other  cases  the  great  industrial  ^?^^^  '^^^^^' 
corporations  have  been  careless  or  openly  regardless  of  the 
conditions  of  the  laboring  population,  and  instead  of  im- 
provement there  has  been  no  improvement  or  even  retro- 
gression. Theoretically  the  advantages  mentioned  should  be 
possible  with  concentration,  and  under  proper  control  they 
should  become  available;  but  they  cannot  be  claimed  as 
general  advantages  of  the  great  corporations  as  they  now 
exist.     (See  pp.  104-154.) 

Total  Advantages  of  Concentration.  —  It  is  not  easy  to  give 
the  economic  advantages  in  terms  of  percentages  for  any 
industry  which  result  from  the  large  factory,  the  subdivision 
of  labor,  the  full  use  of  mechanical  appliances,  the  specializa- 
tion of  departments,  integration,  utilization  of  by-products, 
entrance  into  allied  industries,  distribution  of  plants  of  the 
same  kind,  using  only  the  most  efficient  plants,  maintenance 
of  investigating  departments,  economies  of  business  manage- 
ment, and  reduction  of  amount  of  capital ;  but  it  is  safe  to 
say  that  the  gain  is  very  great  for  the  large  concentration  as 
compared  with  the  small  plant. 

While  percentages  cannot  be  given,  the  economic  advan- 
tages of  concentration  have  been  conclusively  proved  Evidence  of 
for  many  consolidations.  Thus  under  the  competitive  ^^o^^o^es. 
system  some  businesses  became  greatly  overbuilt,  as,  for 
instance,  whisky  distilling.  At  the  time  consolidation 
took  place  when  the  whisky  trust  was  organized,  it  was 
found  advantageous  to  concentrate  the  business  in  a  few 
plants.  It  closed  68  of  its  80  distilleries,  doing  the  entire 
business  of  the  country  with  the  remaining  12,  furnishing 


18  CONCENTRATION  AND  CONTROL 

the  same  output,  and  in  a  short  time  even  an  increased 
output.  Von  Halle  ^  mentions  as  evidences  of  efficiency 
that  the  cotton  oil  trust  shortly  after  its  formation  closed 
more  than  a  dozen  of  the  small  old-fashioned  plants.  The 
sugar  trust  after  formation  was  able  to  supply  the  whole 
market  with  one  fourth  of  its  refineries.  According  to  the 
census  of  1900,  many  of  its  plants  were  idle.  Under  one  of 
the  pool  arrangements  in  steel  the  Carnegie  Company  paid 
to  a  Maryland  company  which  did  not  operate  at  all  $300,000, 
this  sum  being  paid  to  close  the  mill ;  but  the  form  was  gone 
through  of  having  the  orders  come  to  this  mill  while  the 
rails  were  supplied  by  the  Carnegie  Company.  It  was  more 
economical  to  close  the  mill  and  pay  $300,000  than  to  pro- 
duce the  rails  in  the  smaller  mill.^ 

Without  further  development  of  the  economic  gain  of 
concentration,  it  is  evident  that  the  advantages  are  so  great 
as  to  enable  the  large  organizations  to  pay  the  freights  to 
markets  that  are  not  local  and  to  pay  the  expenses  of  market- 
ing products  at  a  distance.  Thus  transportation  once 
developed,  concentration  became  inevitable.  As  already 
indicated  the  two  have  acted  and  reacted ;  for  once  a  market 
secured  at  a  distance,  freight  and  passenger  service  improved 
so  as  further  to  encourage  the  development  of  concentration, 
which  in  turn  further  assisted  transportation,  and  so  on 
continuously. 

The  small   manufactory   in  the  little  town,  except   for 

specialities  and  patent-protected  articles,  has  either  disap- 

Smallmanu-  peared  for  the  most  part  under  the  stress  of  competition, 

factories        ^j.   ^^se   by  combination  has  become  a    unit  of    a   larger 

disappear-  ''  /•     i  n  i- 

ing.  organization.     The  larger  proportion  of  the  small  manufac- 

tories of  standard  and  widely  used  articles  have  been 
discontinued;  but  an  occasional  concern  has  been  saved 
by  becoming  a  part  of  a  combination.  Those  whose 
years  number  fifty  have  seen  the  gristmill  on  the  small 
stream  become  intermittent  in  its  running,  then  cease 
altogether,  although  here  and  there  one  favorably  located  still 
continues  its  small  business.     The  many  widely  dispersed 

1  Von  HaUe,  Trusts,  pp.  65-66.  ^  Ibid,  pp.  62-63. 


FACTS  REGARDING  CONCENTRATION        19 

small  furnaces  for  smelting  iron  ore  have  gone,  and  their 
place  is  taken  by  the  relatively  few  great  blast  furnaces.  No 
longer  is  the  spinning  wheel  or  the  loom  found  in  the  house. 
The  work  has  gone  to  the  great  factory  located  where  labor 
is  available  and  adjacent  to  some  stream  which  furnishes 
adequate  power,  or  where  coal  is  sufficiently  cheap  so  as  to 
furnish  energy  at  a  reasonable  rate.  The  shoemaker  of  the 
village  has  become  the  cobbler,  the  shoes  are  manufactured 
at  great  industrial  centers,  such  as  Boston  and  vicinity. 

The  concentration  of  industry  during  the  past  fifty  years 
has  been  one  of  the  chief  factors  which  has  led  to  the  phe-  Growth  of 
nomenal   growth   of  the   cities,  the   inevitable  centers   for  co^ncentra- 
manufacture  because  of  their  transportational  facilities  and  tion. 
the  abundance  of  labor.     Thus  Chicago,   at  the  head  of 
Lake  Michigan,  having  cheap  water  transportation  to  all 
lake  ports,  and  the  center  of  the  greatest  railroad  system  in 
the  world,  has  become  a  colossus  among  the  manufacturing 
cities  of  the  nation.     The  same  is  true  of  New  York,  the  gate 
of  the  continent,  and  the  great  group  of  cities  which  cluster 
about  that  harbor.     Boston  and  Philadelphia  are  centers 
less  in  importance  only  to  the  two  mentioned. 

While  it  seems  clear  that  the  above  statement  regarding 
the  economic  advantages  of  concentration  cannot  be  gain- 
said, there  may  be  a  limit  beyond  which  additional 
economic  advantages  may  not  occur  from  further  increase 
in  magnitude  or  from  federation  of  great  establishments. 
Also  in  some  industries  in  this  country  the  concentration  and  Magnitude 
federation  may  have  gone  beyond  the  stage  of  magnitude  ^.ndeffi- 
which  does  give  economic  advantage.  This  point  of  view  has 
been  strongly  presented  by  Mr.  Louis  D.  Brandeis.^  Mr. 
Brandeis  mentions  a  number  of  trusts  which  have  been  finan- 
cial failures.  He  states  that  since  the  United  States  Steel  Cor- 
poration was  organized  our  foreign  trade  in  iron  has  increased 
but  slightly  in  ten  years,  from  1,114,000  tons  to  1,533,000 
tons;  whereas  the  German  foreign  tonnage  has  increased 
during  that  time  from  838,000  to  4,868,000 ;  and  that  of  the 

1  Hearings  before  the  Interstate  Commerce  Committee,  United  States 
Senate,  Part  XVI,  pp.  1146-1166. 


20 


CONCENTRATION   AND  CONTROL 


Magnitude 
and  cost  of 
production. 


United  Kingdom  from  2,213,000  to  4,419,000.  On  the  other 
hand,  he  gives  illustrations  of  manufactories  in  which  the 
business  is  fairly  competitive,  as  that  of  book  paper,  in  which 
there  has  been  a  steady  increase  in  efficiency  and  decline  in 
price.  Unfortunately  the  illustrations  given  do  not  prove  the 
general  case.  Had  the  Standard  Oil  or  American  Tobacco 
companies  been  considered,  instead  of  United  States  Steel,  an 
immense  expansion  of  foreign  trade  could  have  been  shown. 

Further,  the  question  of  prices  is  not  the  one  under  dis- 
cussion at  the  present  time ;  the  question  concerns  the  cost  of 
production.  It  will  be  held  in  another  place  that  the  prices 
charged  by  the  great  organizations  have  been  too  high  and 
that  they  should  be  lowered.  Furthermore,  if  we  consider 
only  the  cost  of  production  we  have  dealt  with  but  one  half 
of  the  problem.  As  has  been  seen,  the  economic  advantages 
which  come  from  concentration  are  largely  those  on  the 
business  side  of  the  enterprise,  buying,  selling,  finance,  etc. 
Therefore,  the  problem  for  consideration  is  not  the  cost  of 
production  at  the  factory,  but  the  cost  at  which  a  given 
article  can  be  placed  upon  the  market. 

Taking  the  entire  problem  into  account,  it  is  believed 
future  quantitative  investigations  will  show  that  concentra- 
tion must  go  far  in  order  to  give  the  maximum  of  efficiency, 
although  it  is  not  held  that  it  should  go  to  the  extent  that 
the  element  of  monopoly  enters.  If  the  public  be  able  to 
secure  a  price  based  upon  investment  instead  of  capitalization, 
or  what  the  traffic  will  bear,  it  is  believed  the  price  in  most 
cases  will  be  sufficiently  low  to  justify  the  existing  concen- 
trations. 

While  it  seems  to  the  author  that  the  weight  of  argument 
is  strongly  in  favor  of  the  increased  efficiency  of  very  large 
concentrations  of  industry  upon  the  average,  the  opinions 
of  Mr.  Brandeis  have  been  brought  forward  to  show  that 
this  view  is  not  universally  accepted.  The  position  which 
one  holds  at  the  present  time  for  most  industries  must  depend 
upon  qualitative  statements,  since  there  have  been  few  in- 
vestigations of  the  cost  accounting  in  the  same  industry  for 
different  magnitudes,  and  under  similar  conditions. 


FACTS   REGARDING   CONCENTRATION        21 

Section  2 

CAUSES   OF   CONCENTRATION 

Thus  far  only  the  inevitable  and  legitimate  causes  which 
have  led  to  concentration  have  been  considered.  There 
are  in  addition  very  important  promoting  causes  of  concen- 
tration about  the  legitimacy  of  which  there  will  be  difference 
of  opinion. 

(1)  The  Limited  Liability  Corporation.  —  The  first  of  these 
is  the  rise  of  the  modern  limited  liability  corporation.  Before 
the  Civil  War  an  occasional  manufactory  had  a  capital  of  a 
million  or  even  two  million  dollars.  These  concerns  were 
usually  partnerships  rather  than  joint  stock  companies. 
The  general  corporation  act  of  New  York  was  passed  in 
1848.  Similar  acts  were  later  passed  in  other  states.  These 
laws  were  taken  little  advantage  of  imtil  after  the  Civil  War. 
The  limited  liability  company  gives  immensely  greater 
opportunities  in  the  way  of  magnitude  than  the  partnership. 
The  owner  of  stock  in  such  a  company  is  not  responsible  for 
the  debts  of  the  company  beyond  his  investment  in  the 
stock.  A  partnership  at  best  is  limited  to  a  few ;  the  owners 
of  a  corporation  may  be  thousands  or  even  many  thousands ; 
thus  even  relatively  small  individual  holdings  may  make 
possible  a  large  capitalization.  A  corporation  which  would 
have  been  regarded  as  large  before  the  Civil  War  may  have 
the  majority  of  the  stock  in  holdings  of  $10,000  or  less.  In 
fact  it  is  not  too  much  to  say  that  without  the  device  of  the 
modern  limited  liability  corporation,  it  would  not  have  been 
possible  to  unite  the  enormous  capital  necessary  for  the 
great  industrial  combination  under  the  control  of  a  small 
group  of  men,  the  officers  and  directors  of  a  corporation. 

(2)  The  Protective  Tariff.  —  The  second  of  the  promoting 
factors  is  the  tariff.  It  has  been  the  policy  of  the  United 
States  to  develop  its  industries  and  place  a  tariff  upon  for- 
eign goods  sufficient  to  protect  the  American  manufacturer. 
The  theory  upon  which  such  tariff  has  been  based  has  varied 
from  time  to  time.  First,  it  was  to  protect  the  infant  in- 
dustry.    The  Republican  party,  still  defending  a  protective 


22  CONCENTRATION  AND  CONTROL 

tariff,  has  now  come  to  the  principle  that  the  tariff  should 
be  sufficient  to  compensate  for  the  difference  of  labor  cost 
at  home  and  abroad.  The  Democratic  party  stands  by  the 
position  that  the  tariff  should  be  for  revenue  only.  It  will 
scarcely  be  held  by  any  one  familiar  with  the  situation  that 
either  party,  when  responsible  for  change,  has  framed  the 
tariff  in  accordance  with  the  theory  held.  Whatever  views 
one  has  regarding  the  tariff,  it  will  be  conceded  by 
all  competent  persons  that  the  tariff  on  many  articles  has 
been  more  than  sufficient  to  pay  the  differences  of  cost  of 
labor  at  home  and  abroad;  that  it  has  been  greater  than 
necessary  to  give  the  maximum  revenue;  and  thus  has 
afforded  a  margin  beyond  either  of  these  principles  to  pro- 
tect the  home  manufacturer.  This  has  made  possible  a 
development  of  concentration  in  industry  which  might  not 
otherwise  have  occurred.  Not  only  so,  but  the  high  tariff, 
often  prohibitive,  has  enabled  the  manufacturer  to  sell  com- 
modities at  home  as  high  as  the  tariff  permitted  and  the 
markets  would  bear,  and  to  dispose  of  his  surplus  in  the 
foreign  markets  at  a  lower  rate.  This  practice  has  been  so 
common  that  no  detailed  evidence  regarding  it  is  needed, 
but  one  or  two  illustrations  may  be  mentioned.  The  Steel 
Corporation  sells  its  products  abroad  to  meet  the  world's 
markets  at  a  lower  rate  than  the  same  articles  are  sold  for 
at  home  where  the  freight  is  lower.  Steel  rails  from  the  great 
steel  companies  of  the  United  States  cost  the  railway  com- 
panies of  Canada  less  than  do  the  same  kind  of  rails  the 
companies  of  the  United  States.^  As  shown  on  another 
page,  a  similar  situation  obtained  for  Standard  Oil,  that 
article  having  been  sold  in  the  markets  of  various  parts 
of  the  world  at  a  much  lower  rate  than  in  America,  when 
transportation  charges  are  taken  into  consideration.  (See 
p.  108).  The  same  situation  has  obtained  to  a  large  extent 
with  respect  to  agricultural  implements. 

(3)  Railway  Rebates   and   Drawbacks.  —  Another   impor- 
tant cause  for  the  development  of  concentration  in  the  past 

^  Hearings,  House  Committee  of  Investigation,  Steel  Corporation,  No.  57, 
p.  5135. 


FACTS  REGARDING   CONCENTRATION        23 

has  been  secret  arrangements  between  the  railroad  com- 
panies and  manufacturing  corporations  under  which  rebates 
were  given. 

The  pubUshed  rates  appHed  to  the  small  or  weak  manu- 
factory. Many  large  concerns  in  various  lines  of  industry 
received  rebates  greater  or  less  in  quantity,  and  frequently 
so  great  as  to  make  it  possible  for  the  large  manufactory  to 
sell  at  a  profit ;  whereas  the  weaker  competitor,  obliged  to 
pay  the  published  tariff,  could  sell  only  at  a  loss.  This 
practice  was  common  before  the  interstate  commerce  law 
was  passed  in  1887,  and  has  only  ceased  within  a  few  years. 
It  has  had  powerful  influence  in  the  concentration  of  industry, 
since  the  rebates  were  usually  larger  the  stronger  the  corpora- 
tion;   and  hence  a  strong  impetus  toward  concentration. 

Perhaps  the  best  illustration  of  the  importance  of  this 
factor  in  producing  concentration  was  the  Standard  Oil 
Company,  but  the  influence  on  other  companies  has  scarcely 
been  less  important.  In  one  respect  Standard  Oil  perhaps 
surpassed  all  others  in  profiting  by  unfair  freight  rates, 
in  that  it  not  only  received  rebates  upon  its  own  shipments, 
but  drawbacks  upon  the  shipments  of  its  competitors.  In 
other  words,  the  rebates  which  should  have  gone  to  the 
competitor  went  to  the  Standard  Oil.  Under  these  con- 
ditions the  destruction  of  the  weak  corporations  was 
inevitable. 

(4)  Local  Underselling.  —  Another  factor  very  influential 
in  promoting  concentration  is  that  of  local  underselling,  the 
purpose  being  to  drive  out  the  weaker  competitor.  The  great 
corporation  having  the  advantage  of  a  large  business  and 
wide  markets  may  sell  even  at  a  loss  in  a  given  community, 
until  the  competitor  is  obliged  to  discontinue,  the  loss  to  the 
large  company  being  recouped  by  large  profits  elsewhere. 
This  practice  has  been  engaged  in  by  many  corporations ; 
but  probably  the  chief  one  was  Standard  Oil,  which  or- 
ganization almost  to  the  time  of  its  dissolution  followed 
this  method  of  killing  competition  with  great  success. 
Not  infrequently  the  Standard  Oil  Company  used  for 
the  purpose  a  company  which  was  supposed  by  the  public 


24  CONCENTRATION   AND  CONTROL 

to    be    independent,   but   which   secretly  belonged   to   the 
Standard  Oil. 

(5)  Patents.  —  Another  factor  favoring  concentration  is 
the  control  of  patents.  The  patent  itself  gives  monopoly. 
If  to  produce  a  given  article  a  certain  patent  is  necessary,  all 
other  competitors  are  driven  out  unless  an  equivalent  result 
can  be  reached  in  some  other  way.  A  complicated  manufac- 
turing business  is  hkely  to  have  many  details  which  are  cov- 
ered by  patents,  so  that  many  great  corporations  have  the 
partial  protection  of  monopoly  through  scores  of  patents. 
Such  organizations  are  illustrated  by  the  Westinghouse  and 
General  Electric  companies. 

In  some  specialized  lines  of  machinery,  the  patents  may 
be  so  important  as  to  become  absolutely  necessary  for  the 
industry,  and  in  that  case  control  may  be  secured  by  refusing 
to  deal  with  a  party  unless  all  the  machinery  or  all  the 
material  is  purchased  from  the  concern  controlling  the  patents. 
This  has  been  the  practice  of  the  United  Shoe  Machinery 
Company.  Not  only  so,  but  this  corporation  has  gone  to  the 
point  of  so  fully  controlling  the  machinery  necessary  for  the 
cheap  manufacture  of  shoes  that  it  refuses  to  sell ;  it  merely 
installs  the  machines  in  the  factory  at  a  rental.  The  Shoe 
Machinery  Company  has  absorbed  or  driven  out  all  its  com- 
petitors. 

(6)  Manufacturers'  Rebates.  —  Another  practice  of  the  large 
corporations,  very  successfully  pursued,  to  secure  the  mar- 
ket, is  to  give  a  rebate  upon  the  list  price  of  the  article  at  the 
end  of  a  given  period,  provided  the  buyer  has  purchaesd 
exclusively  from  the  corporation.  This  practice  was  very 
extensively  followed  by  the  American  Tobacco  Company. 
Thus,  if  at  the  end  of  the  year  a  buyer  had  purchased  only 
from  that  company,  he  could  get  a  rebate  of  5  to  7  per  cent 
upon  his  purchases,  the  rate  depending  upon  the  magnitude 
of  his  business. 

(7)  General  Statements.  —  It  is  now  universally  agreed  that 
many  of  these  practices  are  unfair  and  should  be  prohibited. 
That  of  rebates  by  the  railroads  for  interstate  transportation 
was  forbidden  by  the  interstate  commerce  law,  and  many 


FACTS  REGARDING   CONCENTRATION        25 

states  have  passed  similar  laws  to  apply  wdthin  the  states. 
While  these  laws  were  undoubtedly  violated  by  the  railroads 
upon  an  extensive  scale  after  their  passage,  at  the  present 
time  it  is  agreed  upon  all  sides  that  rebates  by  railroads 
are  morally  indefensible;  and  it  is  believed  that  rebating 
has  nearly  ceased  in  consequence  of  investigations  of  com- 
missions, federal  and  national,  with  attendant  prosecutions. 

The  protection  of  the  tariff  still  holds ;  but  at  the  present 
time  the  tariff  is  being  investigated  by  a  commission  and  will 
probably  be  readjusted  soon.  It  is  generally  agreed  that  such 
readjustment  is  necessary.  The  advantages  gained  from 
patents  are  legal  under  existing  law,  and  they  can  only  be 
overcome  by  a  thorough  revision  of  the  patent  laws. 

The  legality  of  giving  rebates  by  manufacturers  upon  pur- 
chases made,  provided  they  are  exclusive,  has  been  upheld  by 
the  courts  in  some  cases ;  but  such  rebates  are  now  regarded 
as  contrary  to  law.  In  many  of  the  states  there  is  no  law 
which  prevents  underselling  to  drive  out  a  competitor,  but  in 
some  states  statutes  and  decisions  place  a  ban  on  this  prac- 
tice (sec  pp.  170-202).  Many  people  have  now  come  to  the 
point  of  view  that  corporations  should  be  required  to  make 
their  charges  in  different  parts  of  the  country  correspond  to 
factory  charge  plus  transportation.  It  is  fully  understood 
that  there  would  be  great  difficulty  in  carrjdng  out  this  idea, 
since  it  is  one  of  the  fundamental  conceptions  of  the  competi- 
tive system  that  a  man  who  owns  a  thing  may  sell  or  refuse 
to  sell ;  and  if  he  decides  to  sell,  he  is  without  restraint  as 
to  the  price  he  may  ask ;  also  it  has  been  a  universally 
accepted  principle  of  trade  that  it  is  legitimate  to  sell  a  large 
quantity  of  goods  at  a  lower  rate  than  smaller  quantities. 

Section  3 

THE  PURPOSES   OF  CONCENTRATION 

The  purposes  which  have  led  to  federation  and  concentra- 
tion, in  addition  to  the  economic  advantages  already  consid- 
ered, are  the  elimination  of  competition,  the  regulation  of 


26  CONCENTRATION  AND  CONTROL 

output  and  division  of  business  and  territory,  the  main- 
tenance of  prices,  and  the  profits  of  readjustment. 

(1)  Elimination  of  Competition.  —  The  ehmination  of 
competition  is  the  most  potent  force  which  led  to  coop- 
eration and  combination.  When  in  a  village  there  are 
two  competitors  and  they  are  able  to  cooperate,  competi- 
tion is  partly  eliminated;  when  they  unite  it  is  wholly 
eliminated.  This  principle  extends  in  its  operation  from 
the  country  cross  roads  to  the  great  industries.  In  another 
place  it  is  shown  that  keen  competition  leads  to  lessening 
of  profits  and  oftentimes  to  wiping  out  profits  altogether,  or 
even  to  loss.  It  is  obvious  that  the  situation  may  be  met 
by  the  union  of  the  competing  concerns;  thus  competition 
itself  frequently  leads  to  combination.  The  elaborate  in- 
vestigation of  the  Industrial  Commission  of  1900  led  to  the 
conclusion  that  "among  the  causes  which  have  led  to  the 
formation  of  industrial  combinations,  .  .  .  competition, 
so  common,  so  vigorous,  that  nearly  all  competing  establish- 
ments were  destroyed,  is  to  be  given  first  place."  ^ 

A  study  of  the  history  of  any  one  of  the  great  combina- 
tions which  exist  in  the  United  States  will  show  that  a 
main  purpose  in  the  establishment  of  the  combination  was 
the  elimination  of  competition.  Therefore  only  a  single 
illustration  will  be  mentioned.  An  elaborate  investigation 
of  the  United  States  Steel  Corporation  shows  that  the  first 
and  most  important  of  the  purposes,  not  only  in  the  for- 
mation of  the  groups  constituting  the  steel  corporation,  but 
later  in  the  union  of  the  groups,  was  the  elimination  of 
competition.^ 

(2)  Regulation  of  Output  and  Division  of  Business  and 
Territory.  —  Under  the  competitive  system,  to  be  more  fully 
discussed  later,  at  times  of  large  demand  and  prosperity,  man- 
ufactories are  likely  to  become  overbuilt.  Then  follows  over- 
production in  the  attempt  to  reduce  cost  by  a  large  output, 
and  with  this  falling  prices.     When  this  situation  is  reached 

1  Industrial  Commission,  Preliminary  Report  on  the  Trusts. 
*  Hearings,  House  of  Representatives,  Investigation  United  States  Steel 
Corporation,  53,  Part  I,  p.  3638. 


FACTS  REGARDING   CONCENTRATION        27 

and  a  time  of  depression  comes,  the  production  of  the  fac- 
tories running  full  time  would  far  outrun  the  demands. 
Manufactories  in  an  industry  which  would,  at  fair  price, 
give  a  profit  if  built  for  the  normal  demands  of  the  country, 
when  overbuilt,  often  become  unprofitable  or  run  at  a  loss, 
at  least  for  many  concerns,  because  of  inability  to  dispose  of 
their  goods,  or  because  of  interest  on  capital  and  deprecia- 
tion when  idle  or  not  running  full  time,  or  partly  both. 

The  extent  to  which  overbuilding  may  go  is  illustrated 
by  the  whisky  industry,  which  before  the  trust  was  formed 
had  distilleries  with  a  capacity  three  or  four  times  as  great 
as  the  demands  of  the  country.  When  after  a  time  of  pros- 
perity a  time  of  depression  came  on,  as  in  the  panic  of  1873,  Overbuild- 
there  was  a  strong  desire  on  the  part  of  the  manufacturers  to  ^^^  ^°^ 

°  ^  combina- 

reduce  the  output  of  the  different  distilleries;  but  unless  tion. 
they  were  united,  it  was  very  difficult  indeed  to  control  them 
so  as  to  make  the  output  of  each  fairly  proportional.  This 
the  manufacturers  could  not  do  through  cooperation  without 
breaking  the  law  regarding  restraint  of  trade.  Thus  greatly 
overbuilt,  they  were  almost  driven  to  combination  to 
regulate  output.  A  situation  similar  to  that  which  led  to 
the  whisky  combination  led  to  combination  in  various 
industries. 

(3)  Maintenance  of  Prices.  —  The  competitive  system 
inevitably  leads  to  great  irregularity  in  price.  One  of  the 
chief  purposes  of  all  cooperation  in  industry  is  the  main- 
tenance of  prices.  When  the  demand  exceeds  the  supply, 
prices  will  be  high  and  there  will  be  little  tendency  to  co- 
operate; but  when  the  supply  exceeds  the  demand,  there 
will  be  falling  prices,  and  this  leads  to  cooperation  for  their 
maintenance.  The  cooperations  may  take  the  form  of 
agreements  or  pools,  or  may  extend  to  consolidation.  The 
extent  of  the  control  of  prices  will  depend  in  large  measure 
upon  the  proportion  of  the  business  which  is  included  in  the 
combination. 

(4)  Profits  of  Promoters.  —  The  fourth  important  purpose 
of  union  and  concentration  are  the  profits  to  promoters  and 
capitalists  in  putting  through  the  reorganizations.     At  each 


28        .    CONCENTRATION  AND  CONTROL 

consolidation  or  reorganization,  the  capital  obligations  of  the 
company  are  increased  without  the  investment  of  additional 
money.  The  inflation  takes  the  form  of  bonds  or  stocks,  or 
partly  both,  of  which  the  stock-holders  get  a  large  share,  but 
great  blocks  often  go  to  the  promoters  and  underwriters. 

As  we  have  seen  on  another  page,  the  American  Tobacco 
Company  was  first  formed  ;  then  there  was  another  company 
formed,  to  which  the  American  Tobacco  Company  was 
subordinate ;  and  then  another  reorganization  made  the 
American  Tobacco  Company  the  dominant  one.  Similarly, 
the  development  of  the  United  States  Steel  Corporation 
went  through  several  stages,  the  two  chief  ones  being  the 
consolidation  of  the  elements  of  the  great  subsidiary  com- 
panies into  units,  and  later  the  union  of  these  units. 

Usually  at  each  consolidation  the  bonds  and  the  pre- 
ferred stock  of  the  new  company  represent  the  actual 
value  of  the  constituent  companies;  and  this  frequently 
upon  a  very  liberal  estimate,  sometimes  much  above  the 
market  value  of  the  outstanding  bonds  and  stocks.  The 
Common  common  stock  issued  at  such  time  is  usually  the  capitaliza- 
stockpure  ^-^^^  ^^  ^^^^  good  wiU,  the  patents,  and  the  economies  which 
are  believed  will  be  effected.  Since  there  is  no  way  to  cal- 
culate accurately  in  advance  the  amount  of  resulting  econ- 
omies, the  issue  of  common  stock  depends  largely  upon  the 
constructive  imagination  of  the  promoters.  It  is  the  a^m  to 
capitalize  the  consolidation  sufficiently  so  that  the  bond 
and  stocks  floated  will  fully  utilize  the  earning  power  of  the 
combination.  The  common  stock  is  speculative,  and  the 
profits  of  the  reorganization  frequently  depend  upon  the 
success  of  the  stock  promoters,  financiers,  and  manipulators 
in  getting  the  public  to  take  the  common  stock,  which  usually 
is  at  the  time  aqua  pura;  or  if  not  that,  it  has  no  more  sub- 
stantial backing  than  the  capitalized  somewhat  hazy  good 
will,  including  the  trade  marks  and  patents,  and  economies 
to  be  effected.  As  we  have  seen,  the  majority  of  the  great 
concentrations  of  industry  have  gone  through  two  or  three 
stages  of  such  reorganization,  the  promoters  and  financiers 
each  time  profiting  greatly,  and  sometimes  enormously. 


FACTS  REGARDING   CONCENTRATION        29 

An  illustration  is   furnished   by  the  American   Tobacco 
Company,  which  between  1890  and  1904  at  its  various  re- 
organizations capitalized  the  good  a\^11  of  the  company  in 
stock   to   the   extent  of   more   than   $110,000,000/  which.  Tobacco, 
however,  between  1904  and  1908  was  reduced  by  $18,000,000. 
Another  illustration  of  great  overcapitalization  was  that  of 
the   United  States   Shipbuilding  Company.     According  to 
James   Smith,  Jr.,^   who  was   appointed   receiver  for   this  Shipbuiid- 
company  when  it  was  unable  to  meet  its  obligations,  the  pany. 
real  value  of  the  properties  which  were  taken  over  was  about 
$12,440,000;   whereas  it  was  capitalized  at  $67,997,000,  or 
more  than  five  times  as  much.     The  directors  of  the  company, 
according  to  him,  appeared  to  have  made  a  gift  of  $55,000,000 
worth  of  stocks  and  bonds  to  various  members  interested 
in  the  manipulations. 

Probably  the  largest  amount  of  water  that  went  on  to  the 
market  at  one  time  was  placed  by  the  United  States  Steel 
Corporation;  more  than  $500,000,000  of  common  stock 
when  issued  represented  no  substance  whatever ;  but  this  is 
not  the  present  situation  (see  pp.  000-000).  The  speculative 
character  of  this  stock  is  indicated  by  its  "^ade  market  Steel, 
variations.  This  stock  was  placed  on  the  market  at  about 
45 ;  went  below  30  in  1902  ;  in  1903  it  ranged  from  39  to  10 ; 
since  that  time,  in  1909,  it  reached  941,  and  March  30,  1912 
had  a  market  value  of  68.  Many  other  instances  could  be 
given  of  the  very  wide  ranges  of  the  common  stock  of  the 
great  corporations,  varying  from  those  like  the  writing  paper  Thetrusta 
trust,  the  upper  leather  trust,  and  the  union  paper  bag  trust,  *^*  failed. 
the  common  stock  of  which  has  ranged  from  50  cents  a  share 
up  to  $4  or  $5  a  share,  to  those  in  which  the  common  stock  has 
in  large  measure  been  made  substance. 

As  illustrations  of  common  stock  which  have  gone  far  above 
par  may  be  mentioned  American  Tobacco  and  Standard 
Oil.  American  Tobacco  has  been  above  525  and  Standard 
Oil  has  reached  900. 

Even  the  preferred  stock  of  the  better  industrials  had  very 

^Report  of  Commissioner  of  Corporations,  "Tobaoco  Industry,"  Part  2, 
p.  13.  * ''Trusts,  Pools,  and  Corporations,"  Ripley,  pp.  197-198. 


30 


CONCENTRATION   AND  CONTROL 


wide  ranges  in  their  market  values  in  their  earlier  years; 
but  there  has  been  a  tendency  toward  solidity  and  uniformity 
in  the  prices  of  the  better  class  of  American  preferred  indus- 
trials, a  considerable  number  of  which  are  now  above  par. 
This  is  shown  by  the  following  table  :  — 


Table   2. 


Range   of   Preferred  Stock   for  Some  Important  Indus- 
trials FOR  1900  AND  1910 


igoo' 


Highest 


Lowest 


1910' 


Highest 


Lowest 


American  Car  and  Foundry  .     . 
American  Cotton  Oil  .     .     .     . 
American  Smelting  and  Refining 
American  Sugar  Refining 
American  Tobacco 
General  Electric 
Laclede  Gas  .     . 
National  Lead    . 
Pressed  Steel  Car 
Pullman    .     .     . 
Republic  Iron  and  Steel 
Union  Bag  and  Paper 
United  States  Rubber 
United  States  Steel  (1901) 


72 
100 

99 
118i 
143 
200 
1021 
1071 

89 
204 

70f 

771 
105i 
1011 


57f 

73i 

85 
106 
128 
120 

95 

83 

70i 
176 

49 

561 

741 

69 


120 
107 
112f 
124 

991 
1601 
1161 
110 
1071 
200 
104i 

73 
1161 
1251 


109 
100 

98i 
110 

90i 
134 

93f 
lOlf 

90 
1531 

82| 

52| 

99 
llOi 


Many  consolidations  organized  in  the  United  States  have 
put  a  variable  amount  of  watered  stock  upon  the  market 
from  a  small  sum  to  the  $500,000,000  of  the  United  States 
Steel  Corporation. 

The  most  serious  of  the  evils  of  overcapitalization  are  as 
follows :  — 

(a)  That  portion  of  the  stock  which  is  pure  water  or  is 
largely  diluted,  through  stock  manipulating  campaigns,  is  sold 
to  the  public,  oftentimes  for  several  times  its  real  value. 

(6)  When  watered  stock  is  placed  upon  the  market,  the 


1  Bradstreet's,  January  5,  1901,  p.  8. 
^Ibid.,  December  31,  1910,  p.  261. 


FACTS   REGARDING   CONCENTRATION        31 

officers  of  a  company  try  to  make  earnings  sufficient  to  pay 
dividends  upon  it ;  and  in  order  to  do  this,  if  practicable, 
excessive  prices  are  charged. 

(c)  Sometimes  the  officers  of  a  company,  which  has  a 
large  amount  of  watered  stock,  put  earnings  back  into  the 
business  with  the  purpose  of  making  the  water  substance; 
to  do  this  further  adds  to  excessive  prices. 

(d)  Oftentimes  the  necessity  of  paying  dividends  upon 
watered  stock  makes  it  difficult  to  accumulate  a  sufficient  re- 
serve to  protect  the  business ;  and  when  a  time  of  depression 
comes,  the  concern  is  likely  to  fall  into  the  hands  of  a  receiver. 

Closely  connected  with  overcapitalization  are  the  profits 
which  come  to  the  financiers  in  connection  with  the  manip- 
ulation of  the  stock  on  the  market,  especially  the  common 
stock.  In  this  country  there  is  no  law  which  prohibits  offi- 
cers and  directors  from  dealing  in  the  stocks  of  their  own 
companies.  Having  inside  information,  they  are  able  to  take 
advantage  of  the  situation,  buying  when  there  is  likelihood 
of  a  rise,  selling  when  there  is  likelihood  of  a  fall.  Indeed, 
it  is  certain  that  the  officers  of  some  companies,  by  giving  stock 
favorable  and  unfavorable  information,  by  timing  the  news  manipula- 
to  their  purposes,  and  in  other  ways,  have  both  bulled  and 
beared  their  stock,  having  as  their  aim  their  own  personal 
advantage  rather  than  the  benefit  of  the  stockholders.  Such 
practices  are  unlawful  in  European  countries  and  should  be 
prohibited  in  America.  It  is  but  just  to  say  that  for  the 
majority  of  the  greater  corporations  there  is  no  evidence 
that  this  grosser  form  of  manipulation  has  been  practiced 
on  a  large  scale.  In  general  the  officers  and  trustees  of  a 
company  have  tried  to  increase  the  value  of  its  stock,  since 
in  most  cases  they  are  holders  of  the  securities  of  the  com- 
pany. 

Section  4 

THE  KINDS   OF  BUSINESS   MOST  LIKELY  TO  BECOME 
CONCENTRATED 

Certain  classes  of  business  are  especially  adapted  to  con- 
centration.    These   classes  are  as  follows :  — 


32 


CONCENTRATION  AND  CONTROL 


The  West 
Shore  road. 


Public 
utilities  and 
monopoly. 


(1)  Industries  in  which  the  element  of  natural  monopoly 
enters  are  likely  to  become  concentrated.  Here  are  included 
the  public  utilities.  For  a  long  time  it  was  supposed  that 
the  railroads  were  on  the  same  basis  as  any  other  business, 
and  that  the  desirable  thing  to  do  was  to  have  as  many 
companies  as  possible.  Parallel  lines  were  regarded  as  ad- 
vantageous because  they  would  compete  for  trade  and  in 
price.  The  disastrous  costliness  of  this  theory  was  clearly 
brought  out  by  the  paralleling  of  the  Vanderbilt  lines  between 
New  York  and  Chicago  by  the  West  Shore  and  the  Nickel 
Plate.  As  the  railroad  business  developed  it  became 
evident  that  if  great  sums  of  money  were  put  into  unneces- 
sary railroads  the  public  must  bear  the  expense;  that  if 
there  were  two  railroads  between  two  given  points  when 
one  could  do  the  business,  the  rates  must  be  higher  rather 
than  lower  in  the  long  run  in  order  to  pay  interest  upon  the 
investment.  This  view  was  accepted  only  after  ruinous  com- 
petition had  occurred  upon  a  great  scale  with  enormous  eco- 
nomic loss. 

The  principles  of  this  part  of  the  subject  are  so  well  known 
that  they  need  not  be  elaborated.  It  is  now  accepted 
doctrine  that  railroads,  electric  lines,  both  city  and  urban, 
telegraph  and  telephone,  and  other  means  of  transportation 
and  communication,  should  only  be  developed  sufficiently 
to  do  the  required  business.  The  business  is  best  done 
when  the  number  of  railroad  lines  from  one  city  to  another 
are  just  sufficient  to  handle  the  traffic,  when  a  single  com- 
pany controls  all  of  the  city  railways,  when  the  telegraph 
business  is  done  by  two  companies  instead  of  by  a  score, 
when  the  telephone  business  of  the  country  is  substantially 
controlled  by  a  single  organization.  Indeed,  these  facts  are 
so  well  recognized  abroad  that  in  Europe  the  means  of 
communication  are  always  government  monopolies,  and  the 
means  of  transportation  largely  or  exclusively  so  except  in 
Great  Britain. 

(2)  Businesses  depending  upon  a  natural  resource  limited 
in  quantity  and  localized  in  its  occurrence  are  likely  to  become 
concentrated.     This  is  well  illustrated  by  anthracite  coal, 


FACTS   REGARDING   CONCENTRATION        33 


all  of  which  for  the  United  States  is  contained  in  one  small  Limited 

natural 
resources. 


area  in  Pennsylvania  of  about  five  hundred  square  miles.  °^*"''^ 


The  entire  anthracite  business  is  now  substantially  controlled 
by  a  half  dozen  corporations. 

(3)  Businesses  in  articles  which  can  be  standardized,  and 
which  in  quality  are  sometimes  controlled  by  inspection,  are 
likely  to  become  concentrated.     Here  are  included  sugar,  oil, 

salt,  whisky,  and  to  a  less  extent  those  industries  in  which  standard- 
there  are  standard  forms  and  dimensions,  as,  for  instance,  ^^ed  articles, 
steel,  matches,  etc.  Salt  is  inspected  and  must  reach  a  definite 
quality ;  oil  must  meet  the  test  of  the  public  inspector  for 
safety ;  sugar  is  easily  tested  by  the  polariscope.  It  is  notable 
that  the  early  group  of  trusts  included  salt,  whisky,  oil,  and 
sugar. 

During  recent  years  by  large  scale  manufacture  there  have 
developed  various  lines  in  which  articles  of  commerce  in 
themselves  very  complex  may  be  regarded  as  standardized. 
A  manufacturer  by  producing  a  very  large  number  of  ma- 
chines of  exactly  the  same  kind  is  able  to  standardize  the 
machinery  and  standardize  methods  of  operation  and  thus 
reduce  cost  to  a  minimum ;  whereas  this  would  not  have 
been  possible  without  such  standardization.  Common  il- 
lustrations of  this  type  of  standardization  are  certain  kinds 
of  automobiles,  cash  registers,  and  typewriters.^ 

(4)  Articles  which  are  demanded  over  a  wide  territory 
are  likely  to  become  concentrated  in  production.     In  this 
connection  the  development  of  transportation  is  of  para- 
mount importance.     If  an  article  be  used  throughout  the  Widely 
country,  a  company  producing  it  may  be  very  large  and  have  "^^^     ,. 
many  plants  even  if  the  object  itself  be  small ;    thus  the  ties. 
Diamond  Match  Company  produces  the  greater  part  of  the 
matches  of  the  United  States. 

The  strength  of  a  very  large  corporation  producing  an 
article  of  wide  use  may  lie  not  in  a  single  plant  at  one  locality 
but  in  many  plants  of  the  same  kind  in  different  localities. 
Thus  a  single  lumber  company  may  have  hundreds  of  yards  in 

*  Hearing  before  the  committee  on  Interstate  Commerce,  United  States 
Senate,  Part  XXI,  p.  1784. 


34 


CONCENTRATION  AND  CONTROL 


Protection 
by  patents. 


Large 
capital. 


as  many  cities ;  a  hardware  company  may  have  shops  distrib- 
uted throughout  a  large  part  of  the  country ;  and  recently, 
we  have  seen  the  development  of  shops  under  one  company  in 
various  cities  for  groceries,  dry  goods,  and  other  commodities. 

(5)  Businesses  protected  by  patents  are  especially  likely 
to  become  concentrated  A  patent  gives  a  monopoly  by  law, 
and  thus  the  same  principle  applies  to  the  making  of  patent- 
protected  products  that  applies  to  a  natural  monopoly.  Here 
also  are  to  be  included  trade-marks,  which,  protected  by 
law,  have  the  same  effect  as  patents,  although  their  influence 
upon  concentration  is  by  no  means  so  far-reaching. 

(6)  Businesses  which  in  themselves  are  of  a  kind  to  require 
a  large  amount  of  capital  are  likely  to  become  concentrated. 
To  build  a  sugar  refinery  costs  several  millions  of  dollars.  To 
build  a  steel  plant  adapted  to  one  line  of  product,  as,  for  in- 
stance, steel  rails,  may  involve  the  expenditure  of  many  mil- 
lions of  dollars.  As  will  be  seen  in  another  place,  there  is  likely 
to  be  greater  fierceness  of  competition  among  relatively  few 
and  large  companies  than  among  many  small  ones.  At  the 
time  of  the  formation  of  the  sugar  trust,  in  consequence 
of  the  killing  of  competition,  consolidation  became  inevi- 
table. At  that  time,  in  1887,  there  were  forty  sugar  refineries 
in  the  United  States,  and  the  combination  only  occurred  after 
some  eighteen  had  gone  into  bankruptcy.^ 


Section  5 


THE  EXTENT   OF   CONCENTRATION 


The  manufacturing  census  of  1905  enables  us  to  trace  the 
stages  of  concentration,  so  far  as  the  establishments  are  con- 
cerned, for  a  number  of  decades.  By  establishment  is  meant 
a  plant  which  is  owned  by  a  single  individual,  firm,  or  cor- 
poration, located  in  a  single  city,  town,  or  county,  and  en- 
gaged in  a  single  industry. 

Concentration  in  Management  Greater  than  Concentration  in 
Plants. — There  are  certainly  hundreds  of  corporations  in  the 

1  "The  Trust  Problem,"  Jenks,  p.  19. 


FACTS   REGARDING  CONCENTRATION        35 

United  States  to  which  the  term  "  trust  "  has  been  popularly- 
applied,  because  each  represents  a  consolidation  in  manage-  The  number 
ment  of  establishments  once  independent.     No  list  of  organ-  °^*"^st8- 
izations  of  this  kind  is  available,  but  it  has  been  estimated 
that  there  are  five  hundred  or  more  such  in  the  United 
States. 

Often  a  considerable  number  of  establishments  of  different 
kinds  and  of  the  same  kind  located  in  different  parts  of  the 
country  are  owned  or  controlled  by  a  single  corporation.  The 
greater  corporations  control  several  scores  of  establishments, 
and  some  of  them,  illustrated  by  the  United  States  Steel, 
more  than  two  hundred. 

If  a  list  of  organizations  were  available  controlling  more 
than  one  establishment,  and  the  number  of  establishments 
constituting  each  organization  were  known,  it  would  be 
practicable  to  give  a  more  accurate  estimate  of  the  extent  to 
which  concentration  has  gone  than  is  now  possible. 

Statistics  Confined  to  Factory  System. — The  census  reports 
are  confined  to  those  establishments  which  are  included  within 
the  factory  system.  They  do  not  include  such  plants  as  the 
small  custom  grist  and  saw  mills,  the  small  shop  such  as  the 
blacksmith  shop,  or  manufacture  in  the  household. 

Considering  all  industries  together,  the  census  report  of 
1905  for  the  country  as  a^whole  includes  216,262  establish-  Dominance 
ments.     As  showing  the  extent  to  which  the  large  establish-  °V^uP, 
ments  control  industry,  the  24,181  establishments  which  have  ments. 
products  exceeding  $100,000  per  annum,  being  only  11.2  per 
cent  of  the  total  number,  have  control  of  81.5  per  cent  of  the 
capital,  employ  71.6  per  cent  of  the  wage  earners,  and  pro- 
duce 79.3  per  cent  of  the  value  of  the  products.     In  some 
lines  of  industry  every  establishment  has  a  product  exceeding 
$100,000  in  value.     Here  are  included  rubber,  glucose,  loco- 
motives, smelting  and  refining  of  zinc. 

Localization  of  Industries.  —  In  connection  with  concentra- 
tion there  has  grown  up,  as  a  corollary,  a  localization  of  many 
industries,  the  larger  part  of  an  industry  for  the  country  per- 
haps being  located  in  a  state,  and  sometimes  even  in  a  county. 
In  other  cases  the  localization  is  in  a  great  section  of  the 


36  CONCENTRATION  AND  CONTROL 

country  in  which  the  conditions  are  similar.  The  localiza- 
tion in  connection  with  concentration  is  dependent  upon  a 
number  of  causes.  Sometimes  the  resources  upon  which 
the  industry  is  based  are  found  only  in  one  section  of  the 
country.  Another  frequent  cause  for  localization  is  that 
when  once  an  industry  has  become  established  in  a  certain 
district,  there  maybe  found  trained  workmen  for  it.  In  con- 
sequence, when  the  existing  corporation  is  enlarged,  a  plant 
is  built  in  the  same  vicinity ;  or  when  a  new  company  enters 
the  business,  it  builds  its  plant  in  the  locality  in  which  there 
are  available  workmen.  Other  factors  favoring  localization 
are  nearness  to  markets,  water  power,  and  favorable  climate. 

If  an  industry  be  an  important  one,  it  may  have  a  number 
of  centers,  and  in  these  few  centers  a  large  part  of  the  busi- 
ness be  located.  In  no  case  is  any  industry  completely  local- 
ized ;  there  will  be  chief  centers  in  which  we  find  the  larger 
number  of  great  plants,  and  in  the  other  parts  of  the  country 
the  industry  may  exist  in  a  more  dispersed  form. 

As  illustrating  the  localization  principle  may  be  mentioned 
the  following  industries  : — ^The  chief  center  for  the  manufac- 
ture of  agricultural  implements  is  the  upper  Mississippi 
Valley,  with  New  York  and  Pennsylvania.  The  iron  and 
steel  industry  is  very  largely  localized  in  the  states  of  Penn- 
sylvania, Ohio,  Illinois,  and  Alabama.  The  meat-packing 
industry  is  mainly  in  the  four  states  of  Illinois,  Kansas, 
Nebraska,  and  Missouri ;  however,  Massachusetts,  Iowa, 
California,  Minnesota,  and  New  Jersey  are  important  states. 
As  an  illustration  of  extreme  localization,  77.2  per  cent  of 
the  ammunition  of  the  country  is  manufactured  in  Connecti- 
cut. This  is  connected  by  the  Census  Bureau  with  the  fact 
that  in  the  manufacture  of  side  arms,  rifles,  shotguns,  and 
revolvers,  Connecticut  has  a  prominent  place.  The  manu- 
facture of  rubber  boots  and  shoes  is  done  in  New  England 
to  the  extent  of  90  per  cent. 

Concentration  in  Representative  Industries. — For  a  number 
of  selected  industries  the  facts  as  to  the  increase  of  concen- 
tration are  tabulated  for  one  or  more  decades.  The  numbers 
other  than  percentages  are  taken  directly  from  the  census 


FACTS  REGARDING   CONCENTRATION        37 

reports;  the  latter  have  been  calculated.  For  each  prod- 
uct these  tables  give  the  number  of  plants,  the  value  of  the 
products,  the  capital  per  establishment,  and  the  value  of 
product  per  establishment,  for  a  number  of  decades,  in  some 
cases  as  far  back  as  1850,  in  other  cases  only  for  one  or  two 
decades.  Since  the  reports  are  from  the  census  of  1905,  the 
last  numbers  are  for  a  half  decade. 

Brief  comments  will  be  made  regarding  each  of  the  fore- 
going tables. 

It  will  be  seen  for  iron  and  steel  (Table  3),  not  only  that  the 
number  of  establishments  has  not  increased  since  1870,  but 
that  it  has  decreased  each  decade ;  and  that  the  total  number 
of  establishments  in  1905,  606,  is  25  per  cent  less  than  in 


Table  3. 


Iron  and   Steel  —  Comparative    Summary    with   Percent- 
ages OF  Increase  1870-1905,  by  Periods 


Tons 

Year 

og| 

Capital 

Value  op 
Products 

Tons  op 
Products 

Capital 
PER  Each 

Estab-' 
lishment 

Value  of 
Products 

PER 

Estab- 
lishment 

OF 

Prod- 
uct per 
Estab- 
lish- 
ment 

1870    .     .     . 

808 

121,772,074 

207,208,696 

3,263,585 

150,708 

256,446 

4,039 

1880    .     .     . 

792 

209,904,965 

296,557,685 

6,486,733 

265,032 

374,442 

8,190 

%  of  Increase 

-3.0 

73.4 

43.1 

98.8 

75.8 

46.0 

103.8 

1890    .     .     . 

719 

414,044,844 

478,087,519 

16,264,478 

575,862 

665,768 

22,621 

%  of  Increase 

-9.2 

97.3 

61.4 

150.7 

117.3 

77.8 

176.3 

1900    .     .     . 

669 

590,530,484 

804,034,918 

29,507,860 

882,706 

1,201,846 

44,107 

%  of  Increase 

-7.0 

43.6 

68.0 

81.4 

53.3 

80.5 

94.9 

1905    .     .     . 

606 

948,689,840 

905,854,152 

34,844,933 

1,565,495 

1,494,809 

57,499 

%  of  Increase 

-9.4 

60.7 

13.7 

18.1 

77.3 

24.4 

30.3 

%  of  Increase 

1870-1905    . 

-25.0 

679.0 

337.1 

967.7 

938.8 

483.8 

1,333.6 

1870.  This  is  the  situation,  notwithstanding  the  fact  that 
each  decade  the  capital  of  the  business  has  increased  from  42 
per  cent  to  97  per  cent,  and  even  for  the  five  years  between 
1900  and  1905,  60  per  cent.  Similarly  the  value  of  the  prod- 
ucts has  increased  each  decade  from  46  per  cent  to  80  per 
cent,  but  the  proportional  increase  was  not  so  great  for  the 
five  years  from  1900  to  1905.  In  the  same  way,  if  we  go  by 
tons  of  product,  the  increases  for  the  three  decades  were 
103  per  cent,  176  per  cent,  and  95  per  cent,  an  average  per 


38 


CONCENTRATION  AND  CONTROL 


decade  for  the  thirty  years  of  more  than  100  per  cent ;  that 
is  to  say,  the  output  of  each  decade  between  1890  and  1900 
was  more  than  for  all  previous  decades.  In  1905  the  aver- 
age capital  per  plant  was  more  than  $1,500,000,  and  the  value 
of  the  products  annually  SI, 500,000.  The  capital  per  estab- 
lishment in  1905  was  more  than  ten  times  as  great  as  in  1870, 
the  value  of  the  product  more  than  five  times  as  much,  and 
the  output  itself  fourteen  times  as  great.  Thus  the  output 
has  increased  faster  than  the  price. 

While  the  number  of  iron  and  steel  establishments  in  1905 
was  606,  seven  great  companies,  now  reduced  to  six,  owning 
the  great  establishments,  controlled  more  than  90  per  cent  of 
the  output  of  the  country. 

By  inspection  of  the  other  tables  statements  might  be 
made  parallel  to  that  which  has  been  made  regarding  iron 
and  steel,  but  this  hardly  seems  necessary  since  a  most 
cursory  examination  of  them  renders  the  facts  apparent. 
Therefore  only  such  general  points  will  be  added  as  are 
brought  forth  by  the  tables. 

Coke  (Table  4)  is  an  industry  which  has  very  rapidly  ex- 
panded and  is  one  in  which  the  number  of  plants  has  steadily 
increased.     This  is  due  partly  to  the  great  expansion  of  the 


Table  4. 


Coke  —  Comparative   Summary  with  Percentages  op  In- 
crease FROM  1880-1905  BY  Periods 


Year 

No.  OF 
Establish- 
ments 

Capital 

Value  op 
Products 

Capital 
per  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1880.     .     .     . 

126 

4,769,858 

5,359,489 

37,856 

42,536 

1890.     .     .     . 

218 

17,462,729 

16,498,345 

80,104 

75,680 

%  of  Increase . 

73.0 

266.1 

207.8 

111.6 

77.9 

1900.     .     .     . 

241 

36,502,679 

35,585,445 

151,463 

147,657 

%  of  Increase . 

10.6 

109.0 

115.7 

89.1 

95.1 

1905.     .     .     . 

278 

90,712,877 

51,728,647 

326,305 

186,074 

%  of  Increase . 

15.4 

148.5 

45.4 

115.4 

26.0 

%  of  Increase, 

1880-1905   . 

120.7 

1,801.9 

865.2 

761.9 

337.5 

FACTS  REGARDING   CONCENTRATION        39 


iron  and  steel  industry,  in  which  coke  is  mainly  used.  Also, 
the  manufacture  of  coke  distributes  itself  naturally,  either 
adjacent  to  the  coal  fields  from  which  it  is  made,  or  to  the 
iron  furnaces  which  use  the  product. 

Shipbuilding  (Table  5)  shows  from  1850  to  1905  a  slight  in- 
crease in  number  of  plants,  capital  multiplied  nearly  twenty- 


Table  5. 


Shipbuilding  —  Comparative    Summary    with    Percentages 
OF  Increase  from  1850-190.5  by  Periods. 


Year 

No.   OF 
Establish- 
ments 

1850.      .      .      . 
1860.     .     .     . 
%  of  Increase  . 

1870.     .     .     . 
%  of  Increase . 

1880.     .     .     . 
%  of  Increase . 

1890.     .     .     . 
%  of  Increase . 

1900.     .     .     . 
%  of  Increase  . 

1905.     .     .     . 

%  of  Increase . 

%  of  Increase, 
1850-1905  . 

953 

675 

-29.2 

964 
42.8 

2,188 
127.0 

1,006 
-54.0 

1,107 
10.0 

1,097 
-0.9 

15.1 

Capit.^l 


5,373,139 

5,952,665 

10.8 

11,463,076 
92.6 

20,979,874 
83.0 

27,262,892 
29.9 

77,341,001 
183.7 

121,623,700 
57.3 

2,163.5 


Value  op 
Products 


16,937,525 

13,424,037 

-20.7 

21,483,967 
60.0 

36,800,327 
71.3 

38,065,410 
3.4 

74,532,277 
95.8 

82,769,239 
11.1 

388.7 


CaPITAIj 

PER  Es- 
tablish- 
ment 


5,638 

8,819 

56.4 

11,891 
34.8 

9,588 
-19.4 

27,100 
182.6 

69,865 
157.8 

110,869 
58.7 

1,866.4 


Value  of 
Products 
PER  Es- 
tablish- 
ment 


17,773 

19,887 

11.9 

22,286 
12.1 

16,819 
-24.5 

37,838 
125.0 

67,328 
77.9 

75,451 
12.1 

324.6 


fold,  and  the  value  of  product  fourfold.  Probably  this 
striking  discrepancy  is  related  to  stock  manipulation  des- 
cribed, pp.  28-31. 

Electrical  machinenj,  apparatus,  and  supplies  (Table  6) 
show  a  history  only  from  1880,  because  these  industries  have 
mainly  arisen  within  the  past  three  decades.  As  would  be 
expected  under  these  circumstances,  the  increase  of  plants 
has  been  very  great,  as  has  also  the  capitalization  per  estab- 
lishment and  the  value  of  the  output.  While  there  are  in 
this  industry  a  large  number  of  establishments,  784,  two 
great  companies,  the  General  Electric  and  Westinghouse,  pro- 


40 


CONCENTRATION  AND  CONTROL 


duce  a  large  per  cent  of  the  value  of  the  output  of  the  country. 
This  illustrates  how  much  farther  concentration  of  manage- 

Table  6.  Electrical  Machinery,  Apparatus,  and  Supplies  —  Com- 
parative Summary  with  Percentages  of  Increase  from  1880-1905 
BY  Periods. 


Ybab 

No.  OP 
Establish- 
ments 

Capital 

Value  op 
Products 

Capital 
per  Es- 
tablish- 
ment 

V.^LUE    OP 

Products 
PER  Es- 
tablish- 
ment 

1880.     .     .     . 
1890.     .     .     . 
%  of  Increase . 

76 

189 

148.7 

1,508,758 

18,997,337 

1,158.3 

2,655,036 

19,114,714 

619.9 

19,865 

100,515 

405.9 

34,934 

101,136 

189.5 

1900.     .     .     . 

%  of  Increase . 

581 
207.4 

83,659,024 
340.4 

92,434,435 
383.6 

143,993 
43.3 

159,095 
57.3 

1905.     .     .     . 
%  of  Increase . 

784 
34.9 

174,066,026 
108.1 

140,809,369 
52.3 

222,023 
54.2 

179,604 
12.9 

%  of  Increase, 
1880-1905  . 

931.7 

11,429.4 

5,203.5 

1,017.7 

414.1 

ment  has  gone  than  increase  in  the  magnitude  of  establish- 
ments. 

For  petroleum  (Table  7),  in  1905  there  were  98  refineries, 
but  as  is  shown  in  another  place  one  company,  the  Standard 


Table  7.    Petroleum    Refining  —  Comparative    Summary   with   Per- 
centages OF  Increase  from  1880-1905  by  Periods 


Year 

No.  op 
Establish- 
ments 

Capital 

Value  op 
Products 

Capital 
per  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1880.     .     .     . 
1890.     .     .     . 
%  of  Increase . 

86 
94 
9.3 

27,325,746 

77,416,296 

183.3 

43,705,218 

85,001,198 

94.5 

317,741 
823,577 
159.2 

508,200 

904,268 

77.9 

1900.     .     .     . 
%  of  Increase . 

67 
-28.7 

95,327,892 
23.1 

123,929,384 
45.8 

1  422,804 
72.7 

1,849,692 
104.6 

1905.     .     .     . 
%  of  Increase . 

98 
46.3 

136,280,541 
43.0 

175,005,320 
41.2 

1  390  618 
-2.3 

1,785,769 
-3.5 

%  of  Increase, 
1880-1905   . 

13.9 

398.7 

300.5 

337.6 

261.3 

FACTS  REGARDING   CONCENTRATION        41 

Oil,  controlled  a  sufficient  number  of  these  so  as  to  produce 
more  than  95  per  cent  of  the  oil  of  the  country. 

Clay  product  establishments,  (Table  8),  from  1850  to  1905 
became  twice  as  numerous  with  a  seventeenfold  capitaliza- 
tion, and  a  sixfold  value  of  product  per  establishment. 
The  increase  in  number  of  clay  product  establishments  is 
explained  by  the  very  wide  distribution  of  clay  and  the 
weight  of  the  articles  manufactured.     The  manufactory  is 


Table  8. 


Clay  Products  —  Comparative  Summary  With  Percentages 
OF  Increase  from  1850-1905  by  Periods 


Yeab 


1850 .  .  . 
1860 .  .  . 
%  of  Increase 

1870 .  .  . 
%  of  Increase 

1880 .  .  . 
%  of  Increase 

1890 .  .  . 
%  of  Increase 

1900 .  .  . 
%  of  Increase 

1905 .     .     . 

%  of  Increase 

%  of  Increase, 
1850-1905  . 


No.  OP 
Establish- 
ments 


2,121 

2,240 

5.6 

3,959 
76.7 

6,383 
61.2 

6,535 
2.4 

6,423 
-1.7 

5,507 
-14.3 

169.6 


Capital 


5,217,231 

9,707,952 

86.1 

26,776,011 
175.8 

35,039,939 
30.9 

108,705,670 
210.2 

148,038,323 
36.2 

230,882,977 
66.0 


4,326.3 


Value  of 
Products 


8,189,359 
13,987,828 
70.8 

36,368,151 
160.0 

41,810,920 
16.0 

89,827,785 
114.8 

95,533,862 
6.4 

135,352,854 
41.7 

1,552.7 


Capital 
PEB  Es- 
tablish- 
ment 


2,459 
4,333 
76.2 

6,763 
56.1 

5,489 
-18.8 

16,634 
203.0 

23,048 
38.6 

41,925 
81.9 

1,604.9 


Value  op 
Products 
PER  Es- 
tablish- 
ment 


3,861 
6,244 
61.7 

9,186 
47.1 

6,550 
-28.7 

13,745 
109.9 

14,873 
8.2 

24,578 
66.2 

536.6 


located  near  the  clay  bank  so  as  not  to  entail  heavy 
freights  in  reaching  the  market. 

Glass  (Table  9),  hke  clay  products,  is  one  of  the  industries 
in  which  there  has  been  an  increase  in  the  number  of  plants 
and  at  the  same  time  a  great  increase  in  the  value  of  the 
capital  and  the  output. 

Salt  (Table  10)  is  one  in  which  the  normal  process  of 
concentration  is  well  illustrated.     We  find  a  decrease   in 


42 


CONCENTRATION  AND  CONTROL 


the  number  of  plants  in  1905  to  less  than  one  half  those  in 
1850,  and  multiplication  of  capital  per  establishment  twenty- 
twofold,  and  value  of  product  tenfold.  As  is  seen  in 
another  place,  salt  is  derived  from  a  natural  resource  limited 
in  amount,  confined  to  definite  areas,  and  the  product  is 
standardized ;     therefore    it    is    of    a   kind    in    which    the 


Table  9. 


Glass  —  Comparative  Summary  with  Percentages  of 
Increase  from  1850-1905  by  Periods 


Ybab 


1850 .  .  . 
18G0 .  .  . 
%  of  Increase 

1870 .  .  . 
%  of  Increase 

1880 .  .  . 
%  of  Increase 

1890 .  .  . 
%  of  Increase 

1900 .  .  . 
%  of  Increase 

1905  .     .     . 

%  of  Increase 

%  of  Increase, 
1850-1905   . 


No.    OF 

Establish- 
ments 


94 
112 
19.1 

201 
79.5 

169 
-15.9 

294 
74.0 

355 
20.7 

399 
12.4 

324.4 


Capital 


3,402,350 

6,133,666 

80.3 

14,111,642 
130.1 

18,804,599 
33.3 

40,966,850 
117.9 

61,423,903 
49.9 

89,389,151 
45.5 

252.7 


Value  op 
Pkoducts 


4,641,676 

8,775,155 

89.1 

19,235,862 
119.2 

21,154,571 
10.0 

41,051,004 
94.1 

56,539,712 
37.7 

79,607,998 
40.8 

1,615.0 


Capital 
PEH  Es- 
tablish- 
ment 


36,195 

54,764 

51.3 

70,207 
28.2 

111,269 
68.5 

139,343 
25.2 

173,025 
24.2 

224,032 
29.5 

519.0 


Value  of 
Products 

PER  Es- 
tablish- 
ment 


49,379 

78,349 

58.7 

95,700 
22.1 

125,174 
30.8 

139,629 
11.5 

159,210 
14.1 

199,518 
25.3 

304.1 


manufacture  is  especially  favorable  to  concentration.  Salt 
manufacture  was  the  first  industry  in  which  the  tendency 
toward  consolidation  in  management  appeared.  At  one 
time  the  entire  output  of  the  country  was  controlled  by  a 
single  combination.      (See  pp.   101-103.) 

Manufactured  ice  (Table  11)  is  one  of  the  industries  in 
which  the  movement  has  been  contrary  to  the  usual  rule. 
The  first  decade,  that  from  1870  to  1880,  was  an  experimental 
one.  The  permanent  tendency  of  the  manufacture  is  shown 
by  the  figures  from  1880  to  the  present  time.  Using  these, 
it   will  be  seen  that  the  number  of  plants  has  increased 


FACTS  REGARDING   CONCENTRATION        43 


very  greatly.  This  increase  is  due  to  the  nature  of  the 
product.  Ice  is  an  article  which  is  heavy  in  proportion  to  its 
cost ;  not  only  so,  it  is  one  which  must  in  the  warm  weather 
be  transported  in  cold  storage,  which  still  further  increases 
the  transportation-cost.  Hence  where  ice  does  not  naturally 
form  reasonably  close  at  hand,  it  is  cheaper  to  manufacture 
it  than  to  transport  natural  ice  to  the  locality.  Similarly, 
it  is  cheaper  to  manufacture  the  ice  at  each  important  center 


Table  10. 


Salt  —  Comparative   Summary   with   Percentages   of   In- 
crease FROM  1850-1905  BY  Periods 


Yeab 


1850 .  .  . 
1860 .  .  . 
%  of  Increase 

1870 .  .  . 
%  of  Increase 

1880 .  .  . 
%  of  Increase 

1890 .  .  . 
%  of  Increase 

1900 .  .  . 
%  of  Increase 

1905 .  .  . 
%  of  Increase 

%  of  Increase, 
1850-1905   . 


No.    OF 

Establish- 
ments 


340 
399 
17.4 

282 
-29.3 

268 
-5.0 

200 
-25.4 

159 
-20.5 

146 
-8.2 

-57.1 


C.^.PITAL 


2,640,860 

3,692,215 

39.8 

6,561,615 
77.7 

8,225,740 
25.4 

13,437,749 
63.4 

27,123,364 
101.8 

25,586,282 
-5.7 

868.8 


Value  op 
Products 


2,177,945 

2,289,504 

5.1 

4,8^8,229 
110.4 

4,829,566 
0.2 

5,484,618 
13.6 

7,966,897 
45.3 

9,437,662 
18.5 

333.4 


Capital 
PER  Es- 
tablish- 
ment 


7,767 

9,253 

19.2 

23,268 
151.4 

30,693 
31.9 

67,188 
118.9 

170,587 
153.8 

175,248 
2.7 

2,156.3 


Value  of 
Products 
PER  Es- 
tablish- 
ment 


6,405 
5,738 
-10.4 

17,085 
197.8 

18,020 
5.5 

27,423 
52.2 

50,106 
82.7 

64,641 
29.0 

909.2 


than  to  transport  it  from  one  to  another.  Hence  we  find 
1320  plants  in  1905  as  compared  with  35  in  1880,  The 
capital  per  establishment  has  increased  about  50  per  cent 
from  1880  to  1905;  but  the  value  of  the  product  per 
establishment  has  not  radically  changed  since  the  earlier 
date. 

For  lumber  and  timber  (Table  12),  the  number  of  estab- 
lishments from  1850  increased  and  then  later  decreased  until 
the  total  number  was  not  much  greater  in  1905  than  in  1850, 


44 


CONCENTRATION  AND  CONTROL 


Table  11.  —  MANtrFACTURED    Ice  —  Comparative    Summary   with    per- 
centages OF  Increase  from  1870-1905  by  Periods 


Year 

No.  of 
Establish- 
ments 

Capital 

Value  op 
Products 

Capital 
PER  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1870.     .     .     . 

4 

434,000 

258,250 

108,500 

64,562 

1880.     .     .     . 

35 

1,251,200 

544,763 

34,720 

15,565 

%  of  Increase . 

775.0 

188.3 

110.9 

68.0 

-75.9 

1890.     .    .    . 

222 

9,846,468 

4,900,983 

44,354 

22,077 

%  of  Increase . 

634.3 

687.0 

799.7 

27.8 

41.8 

1900.     .     .     . 

787 

38,204,054 

13,874,513 

48,544 

17,629 

%  of  Increase . 

254.5 

288.0 

183.1 

9.4 

-20.2 

1905.     .     .     . 

1,320 

66,592,001 

23,790,045 

50,448 

18,022 

%  of  Increase . 

67.7 

74.3 

71.5 

3.9 

2.2 

%  of  Increase, 

1870-1905  . 

32,900.0 

15,243.8 

9,112.0 

-53.5 

-72.1 

Table  12.  —  Lumber  and  Timber   Products  —  Comparative    Summary 
WITH  Percentages  of  Increase  from  1850-1905  by  Periods 


Year 

No.  op 
Establish- 
ments 

Capital 

Value  of 
Products 

Capital 
per  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1850.     .     .     . 

18,769 

41,444,364 

60,413,187 

2,208 

3,218 

1860.     .     .     . 

20,659 

74,530,090 

96,715,856 

3,607 

4,681 

%  of  Increase . 

10.1 

79.8 

60.1 

63.3 

46.4 

1870.     .     .     . 

25,832 

143,493,232 

210,159,327 

5,554 

8,174 

%  of  Increase . 

25.0 

92.6 

117.3 

63.9 

74.6 

1880.     .     .     . 

25,708 

181,186,122 

233,268,729 

7,047 

9,073 

%  of  Increase . 

-0.5 

26.3 

11.1 

26.9 

11.0 

1890.     .     .     . 

22,617 

397,861,928 

437,957,382 

17,591 

19,364 

%  of  Increase  . 

-12.0 

119.6 

87.8 

149.6 

113.4 

1900.     .     .     . 

23,053 

400,857,337 

555,197,271 

17,388 

24,083 

%  of  Increase . 

1.9 

0.8 

26.8 

-1.2 

24.3 

1905.    .    .    . 

19,127 

517,224,128 

580,022,690 

27,041 

30,324 

%  of  Increase . 

-17.0 

29.0 

4.6 

65.6 

26.9 

%  of  Increase, 

1850-1905  . 

1.9 

1,147.9 

860.1 

1,124.6 

842.3 

FACTS  REGARDING  CONCENTRATION        45 

However,  the  capital  per  establishment  for  1905  is  more  than 
twelve  times,  and  the  value  of  the  product  per  establishment 
more  than  nine  times,  those  of  1850.  The  explanation  of  the 
maintenance  of  a  large  number  of  establishments  for  lumber 
and  timber  is  of  course  the  weight  of  the  material  as  com- 
pared with  its  value.  In  the  manufacture  a  large  part  of  the 
wood  of  the  logs  is  removed,  and  therefore  the  product  is 
usually  handled  near  its  source. 

Paper  and  wood  pulp  (Table  13)  is  an  industry  in  which 
there  has  been  an  increase  in  the  number  of  establishments, 


Table  13.  —  Paper   and    Wood    Pulp  —  Comparative    Summary    with 
Percentages  of  Increase  from  1850-1905  by  Periods 


Year 

No.  OF 
Establish- 

Capital 

Value  op 
Products 

Capital 
PER  Es- 
tablish- 

Value of 
Products 

per  Es- 

ments 

ment 

tablish- 
ment 

1850.     .     .     . 

443 

7,260,864 

10,187,177 

16,390 

22,995 

1860.     .     .     . 

555 

14,052,683 

21,216,802 

25,320 

38,228 

%  of  Increase . 

25.3 

93.5 

108.3 

64.5 

66.2 

1870.     .     .     . 

677 

34,556,014 

48,849,285 

51,808 

73,237 

%  of  Increase . 

22.0 

145.9 

130.2 

104.6 

91.6 

1880.     .     .     . 

742 

48,139,652 

57,366,860 

64,878 

77,313 

%  of  Increase . 

9.6 

39.3 

17.4 

25.2 

5.6 

1890.    .    .    . 

649 

89,829,548 

78,937,184 

138,412 

121,628 

%  of  Increase . 

-12.5 

86.6 

37.6 

113.3 

67.3 

1900.     .     .     . 

763 

167,507,713 

127,326,162 

219,538 

166,875 

%  of  Increase . 

17.6 

86.5 

61.3 

68.6 

37.2 

1905.     .     .     . 

761 

277,444,471 

188,715,189 

364,578 

247,983 

%  of  Increase . 

-0.3 

65.6 

48.2 

66.1 

48.6 

%  of  Increase, 

1850-1905   . 

71.8 

3,721.1 

1,752.4 

2,124.4 

978.5 

but  a  much  greater  increase  in  the  capital  and  the  value  of 
the  output  per  establishment.  The  reasons  for  this  situa- 
tion are  the  same  as  those  for  lumber,  the  raw  material  for 
paper  and  wood  pulp  being  the  forests. 

Printing  and  publishing  (Table  14)  is  one  of  the  industries 
in  which  there  has  been  increase  in  number  of  plants,  no 


46 


CONCENTRATION  AND  CONTROL 


great  increase  in  capital,  and  no  great  increase  in  the  value 
of  the  product  per  establishment.  It  gives  the  best  illus- 
tration of  any  of  the  tables  of  the  lack  of  tendency  toward 
concentration.  The  explanation  undoubtedly  is  that  the 
great  majority  of  printing  and  publication  establishments 
publish  newspapers.  Every  community  of  any  size  has  a 
newspaper,  and  the  large  city  has  a  considerable  number, 
each  one  of  which  has  its  own  plant.  Local  news  can 
only  be  handled  locally.     The  news  of  the  day  is  demanded 


Table    14.    Printing   and  Publishing  —  Comparative   Summary  with 
Percentages  of  Increase  from  1880-1905  by  Periods. 


Yeab 

No.  OP 
Establish- 
ments 

Capital 

Value  op 
Products 

Capital 
PER  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1880.     .     .     . 
1890.     .     .     . 
%  of  Increase . 
1900.     .     .     . 
%  of  Increase . 
1905.     .     .     . 
%  of  Increase . 
%  of  Increase, 
1880-1905  .     . 
%  of  Increase, 
1890-1905   . 

16,566 

22,311 
34.7 

26,422 
18.4 

59.5 

195,387,445 

292,516,642 

49.7 
385,008,604 

31.6 

97.1 

179,988,415 
275,452,515 

53.0 
347,054,430 

26.0 
496,061,357 

42.9 

175.6 
80.1 

11,794 

13,110 
11.1 
14,571 
11.1 

23.5 

16,627 

15,555 
-6.4 
18,774 
20.7 

12.9 

in  the  evening  or  the  morning.     Concentration  of  the  print- 
ing industry  is  therefore  impossible. 

In  agriculturalimplements  (Table  15),  concentration  has  gone 
very  far,  the  number  of  plants  being  not  half  as  great  in  1905 
as  in  1850 ;  but  the  value  of  the  output  of  each  establishment 
is  more  than  thirty  times  as  great  as  in  1850.  Agricultural 
implements  illustrate  the  class  of  product  which  is  very  widely 
used,  can  be  standardized,  and  hence  is  favorable  to  concen- 
tration in  manufacture.  These  factors  are  more  important 
than  the  freight,  although  agricultural  implements  are  heavy. 


FACTS  REGARDING  CONCENTRATION        47 


Table   15.    Agriculttjral  Implements  —  Comparative   StjirMARY  with 
Percentages  of  Increase  from  1850-1905  by  Periods. 


Year 


1850 .     .     . 
1860 .     .     . 
%  of  Increase 
1870 .     .     . 
%  of  Increase 
1880 .     .     . 
%  of  Increase 
1890 .     .     . 
%  of  Increase 
1900 .     .     . 
%  of  Increase 
1905 .    .     . 
%  of  Increase 
%  of  Increase, 
1850-1905   . 


No.  OP 

Establish- 
ments 


1,333 

2,116 

58.7 

2,076 

-1.9 

1,943 

-6.4 

910 

-53.2 

715 

-21.4 

648 

-9.4 

-51.4 


Capital 


3,564,202 
13,866,389 

289.0 
34,834,600 

151.2 
62,109,668 

78.3 
145,313,997 

134.0 
157,707,951 

8.5 
196,740,700 
24.8 

5,419.9 


Value  op 
Products 

Capital 
PER  Es- 
tablish- 
ment 

6,842,611 

2,674 

20,831,904 

6,553 

204.4 

145.1 

52,066,875 

16,779 

149.9 

156.0 

68,640,486 

31,966 

31.8 

90.5 

81,271,651 

159,685 

18.4 

399.4 

101,207,428 

220,571 

24.5 

38.2 

112,007,344 

303,612 

10.7 

•  37.6 

1,536.9 

11,254.2 

Value  op 
Products 
PER  Es- 
tablish- 
ment 


5,133 

9,845 

91.8 

25,080 

154.7 

35,327 

40.9 

89,309 

152.8 

141,549 

58.5 

172,851 

22.1 

3,267.6 


Table    16.     Butter,    Cheese,   and    Condensed    Milk  —  Compaeativb 
Summary  with  Percentages  of  Increase  from  1880-1905  by  Periods. 


Year 

No.  of 
Establish- 
ments 

CAPITAL 

Value  of 
Products 

Capital 
PEH  Es- 
tablish- 
ment 

Value  op 
Products 

PER  Es- 
T.^BLISH- 

ment 

1880.     .     .     . 

3,932 

9,604,803 

25,742,510 

2,442 

6,546 

1890.     .     .     . 

4,552 

16,016,573 

60,635,705 

3,518 

13,320 

%  of  Increase . 

15.8 

66.8 

135.5 

44.1 

103.4 

1900.     .     .     . 

9,242 

36,303,164 

130,783,349 

3,928 

14,151 

%  of  Increase . 

103.0 

126.7 

115.7 

11.7 

6.2 

1905.     .     .     . 

8,926 

47,255,556 

168,182,789 

5,295 

18,842 

%  of  Increase . 

-3.4 

30.2 

28.6 

34.8 

33.2 

%  of  Increase, 

1880-1905  . 

127.0 

392.0 

653.3 

116.8 

187.8 

48 


CONCENTRATION  AND  CONTROL 


Butter,  cheese,  and  condensed  milk  (Table  16)  represent  an 
industry  with  an  increase  in  number  of  establishments,  and  no 
rapid  increase  in  the  capital  per  establishment  and  the  value 
of  the  output.  The  explanation  is  that  the  raw  material, 
milk,  is  being  produced  over  a  steadily  widening  territory,  and 
transported,  must  be  transported  rapidly.    This  is  expensive ; 


Table  17.      Beet  Sugar   (1890  data  not  given)  —  Comparative   Sum- 
mary WITH  Percentages  of  Increase  from  1880-1905  by  Periods 


Year 

No.  OP 
Establish- 
ments 

1880.     .     .     . 
1900.     .     .     . 
%  of  Increase . 

4 

30 

650.0 

1905.     .     .     . 
%  of  Increase  . 

51 
70.0 

%  of  Increase, 
1880-1905  . 

1,175.0 

Capital 


365,000 
20,141,719 
5,418.3 

55,923,459 
177.6 

15,221.5 


Value  op 
Pkoducts 

Capital 
PER  Es- 
tablish- 
ment 

282,572 
7,323,857 
2,491.8 

91,250 

671,390 

635.7 

24,393,794 
233.1 

1,096,538 
63.3 

8,532.7 

1,101.7 

Value  of 
Products 
PER  Es- 
tablish- 
ment 


70,643 

244,128 

246.5 

478,309 
96.9 

677.1 


hence  it  is  advantageous  to  have  numerous  establishments  of 
fair  size  distributed  throughout  the  producing  area. 

Beet  sugar  (Table  17)  is  another  industry  which  has  a 
short  history.  In  this  case,  there  is  a  very  great  increase 
in  the  number  of  establishments,  capital  per  establishment, 
and  value  of  product  per  estabhshment.  The  former  shows 
dispersion  of  the  industry  with  the  expansion  of  the  beet- 
growing  territory,  and  the  latter  increase  in  the  magnitude 
of  the  establishments.  Beets  are  heavy  as  compared  with 
their  cost;  they  cannot  be  transported  far,  and  wherever 
a  district  undertakes  the  growing  of  beets,  a  manufactory 
must  be  located  near  the  source  of  supply. 

Starch  (Table  18),  one  of  the  standardized  articles,  has 
had  something  of  a  decrease  in  the  number  of  establishments 
from  1850  to  1905,  but  a  multiplication  of  more  than  eleven- 
fold in  capital,  and  of  sevenfold  in  the  value  of  the  output 
per  establishment. 


FACTS   REGARDING   CONCENTRATION        49 

Tobacco  (Table  19)  is  an  industry  in  which  there  has 
been  a  great  increase  in  the  number  of  establishments.  The 
number  in  1905  was  thirteen  and  one  half  times  as  great 
as  in   1860.     While  there  has  been  a  steady  and  moderate 


Table  18. 


Starch  —  Comparative  Summary  with  Percentages  of  In- 
crease FROM  1850-1905  BY  Periods 


Year 

No.  OP 
Establish- 
ments 

1850.     .     .     . 
1860.     .     .     . 
%  of  Increase . 

146 
167 
14.4 

1870.     .     .     . 
%  of  Increase . 

195 
16.8 

1880.     .     .     . 
%  of  Increase . 

139 
-28.7 

1890.     .     .     . 
%  of  Increase . 

SO 
-42.4 

1900.     .     .     . 
%  of  Increase . 

124 
66.0 

1905.     .     .     . 
%  of  Increase . 

131 
5.6 

%  of  Increase, 
1850-1905  . 

-10.3 

Capital 


692,675 
2,051,710 
196.2 

2,741,675 
33.6 

5,328,256 
94.3 

4,929,155 
-7.6 

11,671,567 
136.8 

7,007,695 
-40.0 

911.8 


Value  op 
Products 


1,261,468 

2,823,258 

123.8 

5,994,422 
112.3 

7,477,742 
24.7 

8,934,517 
19.5 

9,232,984 
3.3 

8,082,904 
-12.5 

540.8 


Capital 
PER  Es- 
tablish- 
ment 


4,744 

12,286 

159.0 

14,059 
14.4 

38,332 
172.7 

61,614 
60.7 

94,125 
52.8 

53,494 
-43.2 

1,027.6 


Value  op 
Products 
PER  Es- 
tablish- 
ments 


8,640 

16,906 

95.7 

30,741 
81.8 

53,797 
75.0 

111,681 
107.5 

74,459 
-33.4 

61,701 
-17.1 

614.1 


increase  in  the  capital  per  establishment  and  an  increase  in 
the  value  of  the  product  per  establishment,  these  have  not 
been  large.  Thus  tobacco  is  a  case  in  which,  so  far  as 
number  of  estabUshments  is  concerned,  the  industry  is  much 
dispersed. 

But  these  statistics  might  lead  to  quite  erroneous  conclu- 
sions ;  for,  as  we  have  seen  in  another  connection,  this  is 
one  of  the  industries  in  which  a  few  of  the  great  manufac- 
tories are  doing  a  large  part  of  the  business,  and  one  in 
which  a  single  concern  reached  a  position  of  monopoly. 
The  American  Tobacco  Company,  before  its  dissolution,  con- 
trolled more  than  50  per  cent  of  the  business  of  the  country, 


50 


CONCENTRATION  AND  CONTROL 


and  controlled  from  59  to  over  90  per  cent  of  all  of  the  lines 
of  tobacco  business  with  the  exception  of  cigars.  This 
illustration  shows  how  far  the  statistical  tables  of  the  census 
fail  to  give  an  idea  of  the  extent  of  concentration  of  manage- 
ment which  has  taken  place. 

In  the  slaughter  and  meat  packing  industry  (Table  20), 
the  number  of  establishments  has  greatly  increased  from 
1850  to  1905,  being  five  times  as  numerous ;  and  during  the 
same  time  the  capital  per  establishment  has  become  thirteen- 
f  old,  and  the  value  of  the  product  per  establishment  fif  teenf  old. 


Table  19. 


Tobacco  —  Comparative   Summary  with  Percentages   of 
Increase  from  1860-1905  by  Periods 


Yeab 


1860 .  .  . 
1870 .  .  . 
%  of  Increase 

1880 .  .  . 
%  of  Increase 

1890 .  .  . 
%  of  Increase 

1900 .  .  . 
%  of  Increase 

1905 .     .     . 

%  of  Increase 

%  of  Increase, 
1860-1905  . 


No.  OP 
Establish- 
ments 


2,104 
5,204 
147.3 

7,622 
46.6 

11,351 
48.9 

14,959 
31.8 

16,828 
12.6 

699.8 


Capital 


12,529,960 
24,924,330 
98.9 

38,905,950 
66.1 

90,359,143 
132.3 

111,517,318 
23.4 

323,983,501 
190.6 


2,486.6 


Value  op 
Products 

Capital 
PER  Es- 
tablish- 
ment 

30,889,313 

71,762,044 

132.3 

5,955 

4,789 

-19.6 

116,772,631 
62.7 

5,104 
6.6 

195,536,862 
67.6 

7,960 
66.9 

263,713,173 
34.9 

7,454 
-6.4 

331,117,681 
25.6 

19,252 
168.2 

971.9 

223.2 

Value  of 
Products 
PER  Es- 
tablish- 
ment 


14,681 
13,789 
-6.1 

15,320 
11.1 

17,226 
12.6 

17,629 
2.3 

19,676 
11.6 

34.0 


The  explanation  of  the  numerous  plants  is  the  fact  that 
concentration  has  not  gone  to  the  point  so  that  the  small 
community  does  not  have  its  own  slaughterhouse.  How- 
ever, as  is  shown  in  another  place,  more  than  50  per  cent  of 
the  business  of  the  country  is  done  at  the  great  abattoirs  of 
the  large  cities.  So  far  as  management  is  concerned  these 
are  under  the  control  of  six  great  concerns;  and  these  six 
are   charged   with   cooperating   in   business,     'the   average 


FACTS   REGARDING   CONCENTRATION        51 

capital  per  establishment  is  large,  more  than  a  quarter  of  a 
million ;  the  ratio  between  capital  and  output  per  establish- 
ment is  1  to  4,  a  much  higher  ratio  than  obtains  for  most 
industries. 

The  leather  business  (Table  21)  is  one  of  great  concentra- 
tion. The  number  of  plants  in  1905  is  less  than  one  sixth 
as  many  as  in  1850,  the  capital  per  establishment  more 
than  sixtyseven  times  as  great,  and  the  value  of  the  product 
thirtyseven  times  as  great.     Tanning  is  a  complex,  chemical 


Table  20.    Slaughtering  ast)  Meat  Packing  —  CoMPARATrvTE  Summary 

WITH    PeBCENTAGES   OF    INCREASE   FROM    1850-1905   BT   PERIODS 


Yeab 


1850 .     .     . 
1860 .     .     . 

%  of  Increase 

1870 .     .     . 
%  of  Increase 

1880 .     .     . 
%  of  Increase 

1890 .     .     . 
%  of  Increase 

1900 .     .     . 

%  of  Increase 

1905 .     .     . 

%  of  Increase 

%  of  Increase, 
1850-1905  . 


No.  OP 
Establish- 
ments 


185 
259 
40.0 

768 
196.5 

872 
13.5 

1,11S 
28.2 

882 
-21.1 

929 
5.3 

402.1 


Capital 


3,482,500 

10,158,362 

191.7 

24,224,692 
138.5 

49,419,213 
104.0 

116,887,504 
136.5 

188,800,181 
61.5 

237,714,690 
25.9 


6,725.9 


Valtte  of 
Products 


ll,981,(>i2 

29,441,776 

145.7 

75,826,500 
157.5 

303,562,413 
300.3 

561,611,668 
85.0 

783,779,191 
39.6 

913,914,624 
16.6 


7,527.6 


Capital 

PER  Es- 
tablish- 
ment 


18,824 
39,221 
108.3 

31,542 
-19.6 

56,673 
79.7 

104,550 
84.4 

214,059 
104.7 

255,882 
19.5 

1,259.3 


Valub  of* 
Produots 
PER  Es- 
tablish- 
ment 


64,765 

113,675 

75.5 

97,430 
-14.3 

348,122 
257.3 

502,336 
44.3 

888,627 
76.9 

983,762 
10.7 

1,419. 


process,  requiring  a  large  plant.  The  raw  hides  in  large 
number  come  from  the  great  packing  houses  and  from 
importations.  That  portion  derived  from  the  dispersed 
slaughterhouses  can  readily  reach  the  great  tanneries,  since 
hides  are  not  heavy  as  compared  with  their  value.  Another 
factor  localizing  the  tanneries  is  the  necessity  for  tanbark. 
This  largely  locates  the  industry  in  the  parts  of  the  country 
where  this  material  is  not  at  a  great  distance. 


52 


CONCENTRATION  AND  CONTROL 


Table  21.    Leather,  Tanned,  Curried,  Finished  —  Comparative  Sum- 
mary WITH  Percentages  of  Increase  from  1850-1905  by  Periods 


Ybab 

No.  OP 
Establish- 
ments 

Capital 

Value  or 
Products 

Capital 
PER  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1850.     .     .     . 
1860.     .     .     . 
%  of  Increase . 

6,686 

5,188 

-22.4 

22,774,795 

39,025,620 

71.4 

43,457,898 

75,698,747 

74.2 

3,406 
7,522 
120.8 

6,499 
14,591 
124.6 

1870.     .     .     . 
%  of  Increase . 

7,569 
45.9 

61,124,812 
56.6 

157,237,597 
107.7 

8,075 
7.3 

20,773 
42.4 

1880.     .     .     . 
%  of  Increase . 

5,628 
-25.6 

73,383,911 
20.1 

200,264,944 
27.4 

13,039 
61.6 

35,583 
71.3 

1890.     .     .     . 
%  of  Increase . 

1,787 
-68.2 

98,088,698 
33.7 

172,136,092 
-14.0 

54,890 
320.9 

96,326 
170.7 

1900.     .     .     . 

%  of  Increase . 

1,300 
-26.9 

173,977,421 
77.4 

204,038,127 
18.5 

133,213 
142.7 

15,623 
62.2 

1905.     .     .     . 
%  of  Increase . 

1,049 
-19.7 

242,584,254 
39.4 

252,620,986 
23.8 

231,252 
73.6 

240,820 
54.1 

%  of  Increase, 
1850-1905  . 

-84.4 

965.1 

481.3 

6,689.5 

3,605.5 

The  manufacture  of  boots  and  shoes  (Table  22),  a  severely 
competitive  industry,  and  a  business  which  has  been  freely 
entered  by  competitors,  shows  a  decrease  in  the  number  of 


Table  22. 


Boots  and  Shoes  —  Comparative  Summary  with  Percent- 
ages OF  Increase  from  1880-1905  by  Periods 


Year 

No.  or 
Establish- 
ments 

Capital 

Value  op 
Products 

Capital 
per  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1880.     .     .     . 
1890.     .     .     . 
%  of  Increase . 

1900.     .     .     . 
%  of  Increase . 

1905.     .     .     . 
%  of  Increase . 

%  of  Increase, 
1880-1905   . 

1,959 

2,082 

6.3 

1,599 
-23.2 

1,316 
-17.7 

-32.8 

42,994,028 

95,282,311 

121.6 

99,819,233 
4.8 

122,526.093 
22.7 

184.9 

166,050,354 

220,649,358 

32.9 

258.969.580 
17.4 

320,107,458 
23.6 

92.8 

21,947 
45,764 
108.5 

62,426 
36.4 

93,105 
49.1 

324.2 

84,763 

105,979 

25.0 

161,957 
52.8 

243,243 
60.2 

188.1 

FACTS   REGARDING   CONCENTRATION        53 

establishments  as  compared  with  1880  of  seventeen,  and  as 
compared  with  1890  of  thirty-two.  In  this  industry,  as 
elsewhere,  the  capital  per  establishment  and  the  value  of  the 
output  per  establishment  have  considerably  increased, 
although  not  so  largely  as  in  some  others.  In  1905  the 
average  capital  per  establishment  was  $93,105  and  the 
value  of  the  output  per  establishment  $243,243,  a  ratio  of 
one  to  two  and  a  half.  This  ratio,  like  that  of  the  meat 
industry,  is  much  higher  than  the  average. 

Leather  gloves  and  mittens  (Table  23)  illustrate  an  industry 
in  which  the  number  of  manufactories  has  steadily  increased 


Table   23.     Leather   Gloves   and   Mittens  —  CoMPAHATrv'E   SuMALiRT 
WITH  Percentages  of  Increase  from  1850-1905  by  Periods 


Yeab 

No.  OF 
Establish- 
ments 

1850.     .    .     . 
1860.     .     .     . 
%  of  Increase . 

110 
126 
14.5 

1870.     .     .     . 
%  of  Increase . 

221 
75.4 

1880.     .     .     . 
%  of  Increase . 

300 
35.7 

1890.     .     .     . 
%  of  Increase  . 

324 
8.0 

1900.     .     .     . 
%  of  Increase . 

381 
17.6 

1905.     .     .    . 

%  of  Increase  . 

339 
-11.0 

%  of  Increase, 
1850-1905  . 

208.2 

Capital 


181,200 
594,825 
228.3 

2,340,550 
293.5 

3,379,648 
44.4 

5,977,820 
76.9 

9,004,427 
50.6 

10,705,599 
18.9 

5.808.2 


Value  op 
Products 


708,184 
1,176,795 
66.2 

3,998,521 
239.8 

7,379,605 
84.6 

10,103,821 
36.9 

16,721,2,34 
65.6 

17,740,385 
6.1 

2,405.0 


Capital 
PER  Es- 
tablish- 
ment 


1,647 
4,720 
186.6 

10,590 
124.3 

11,265 
6.4 

18,450 
63.8 

23,633 
28.1 

31,579 
33.6 

1,817.4 


Value  of 
Products 
PER  Es- 
tablish- 
ment 


6,438 
9,339 
45.1 

18,092 
93.7 

24,598 
35.9 

31,184 
26.8 

43,887 
40.7 

52,331 
19.2 

712.8 


until  it  was  threefold  as  great  in  1905  as  in  1850;  but 
the  capital  per  establishment  and  value  of  the  products  per 
establishment  increased  at  a  much  greater  rate.  In  the 
respect  of  increase  in  number  of  establishments  there  is 
contrast  between  this  industry  and  the  manufacture  of  boots 
and  shoes. 


54 


CONCENTRATION  AND  CONTROL 


Table  24. 


Cotton  Goods  —  Comparative  SuMMARr  with  Percentages 
OF  Increase  from  1850-1905  by  Periods 


Year 


1850 .  .  . 
ISoO .  .  . 
%  of  Increase 

1870 .  .  . 
%  of  Increase 

1880 .  .  . 
%  of  Increase 

1890 .  .  . 
%  of  Increase 

1900 .     .     . 

%  of  Increase 

1905 .  .  . 
%  of  Increase 

%  of  Increase, 
1850-1905   . 


No.  OP 
Establish- 
ments 


1,094 
1,091 
-0.3 

956 
-12.4 

756 
-20.9 

905 
19.7 

973 
7.5 

1,077 
10.7 

-1.7 


Capital 


74,500,931 

98,585,269 

32.3 

140,706,291 
42.7 

208,280,346 
48.0 

354,020,843 
70.0 

460,842,772 
30.2 

605,100,164 
31.3 

712.1 


Value  op 
Products 


61,869,184 

115,681,774 

87.0 

177,489,739 
53.4 

192,090,110 
8.2 

267,981,724 
39.5 

332,806,156 
24.2 

442,451,218 
32.9 

615.1 


CAPITAL 

PER  Es- 
tablish- 
ment 


68,099 
90,362 

32.7 
147,182 

62.8 

275,503 
87.2 

391,183 
42.0 

473,631 
21.1 

561,838 
18.6 


Value  op 
Products 
PER  Es- 
tablish- 
ment 


56,533 

106,033 

87.6 

185,658 
75.1 

254,087 
36.8 

296,112 
16.6 

342,041 
15.5 

410,818 
20.1 


724.9        626.2 


Table  25.    Wool  Manufactories  —  Comparative  Summary  with 
Percentages  of  Increase  from  1860-1905  by  Periods 


Year 


1860 .  .  . 
1870 .  .  . 
%  of  Increase 

1880 .  .  . 
%  of  Increase 

1890 .  .  . 
%  of  Increase 

1900 .  .  . 
%  of  Increase 

4905 .  .  . 
%  of  Increase 

%  of  Increase, 
1860-1905   . 


No.  op 
Establish- 


1,476 
3,208 
117.3 

2,330 
-27.4 

1,693 
-27.3 

1,414 
-16.5 

1,213 
-14.2 

-17.8 


Capital 


38,814,422 
121,451,059 
212.9 

143,512,278 
18.2 

245,886,743 
71.3 

310,179,749 
26.1 

370,861,691 
19.6 

855.4 


Value  op 
Products 


73,454,000 

199,257,262 

171.3 

238,085,686 
19.5 

270,527,511 
13.6 

296,990,484 
9.8 

380,934,003 
28.3 

418.6 


Capital 
PER  Es- 
tablish- 
ment 


26,297 

37,858 

43.9 

61,593 
62.7 

145,237 
135.8 

219,363 
51.1 

305,739 
39.4 

1,062.6 


Value  op 
Products 
PER  Es- 
tablish- 
ment 


49,765 

62,112 

24.8 

102,183 
64.5 

159,792 
56.4 

210,035 
31.5 

314,043 
49.5 

531.0 


FACTS   REGARDING  CONCENTRATION        55 

The  cotton  and  wool  manufactories  (Tables  24  and  25) 
afford  cases  in  which  the  number  of  establishments  has 
decreased  (for  cotton  slightly,  and  for  wool  considerably), 
and  in  which  the  concentration  has  been  in  the  increase  of 
the  capital  and  the  output  per  establishment. 

Hosiery  and  knit  goods  (Table  26)  illustrate  a  product 
in  which  the  number  of  establishments  has  increased  very 


Table  26.     Hosiery  and  Knit  Goods  —  Comparative   Summary  with 
Percentages  or  Increase  from  1860-1905  by  Periods 


Yeab 

No.  OP 
Establish- 
ments 

Capital 

Valttb  of 
Products 

Capital 
PER  Es- 
tablish- 
ment 

Value  op 
Products 
PER  Es- 
tablish- 
ment 

1860.     .     .     . 

197 

4,035,510 

7,280,606 

20,485 

36,957 

1870.     .     .     . 
%  of  Increase . 

248 
25.9 

10,931,260 
170.9 

18,411,564 
152.9 

44,078 
115.1 

74,240 
100.9 

1880.     .     .     . 
%  of  Increase . 

359 
44.8 

15,579,591 
42.5 

29,167,227 
58.4 

43,397 
-1.6 

81,246 
9.4 

1890.     .     .     . 
%  of  Increase . 

796 
121.7 

50,607,738 
224.8 

67,241,013 
130.5 

63,578 
46.5 

84,473 
4.0 

1900.     .     .     . 
%  of  Increase . 

921 
15.7 

81,860,604 
61.8 

95,482,566 
42.0 

88,882 
39.8 

103,672 
22.7 

1905.     .     .     . 
%  of  Increase . 

1,079 
17.2 

106,663,531 
30.3 

136,558,139 
43.0 

98,854 
11.2 

126,559 
22.1 

%  of  Increase, 
1860-1905  . 

447.7 

2,543.1 

1,775.6 

382.6 

242.4 

greatly,  since  in  1905  there  were  more  than  five  times  as  many 
as  in  1860.  The  capital  per  establishment  is  nearly  five- 
fold, and  the  value  of  product  per  establishment  nearly 
three  and  one  half  fold.  Thus  we  have  here  concentration 
so  far  as  size  of  establishments  is  concerned,  but  not  concen- 
tration of  establishments.  The  reason  for  the  contrast  in 
tendency  so  far  as  number  of  establishments  is  concerned 
between  hosiery  and  knit  goods  and  cotton  and  woolen  is 
not  clearly  apparent.  All  are  industries  in  which  invention 
and  improvement  of  machinery  during  the  past  fifty  years 
has  been  most  marked;    but  it  may  be  suggested  that  the 


56 


CONCENTRATION   AND  CONTROL 


size  of  the  machines  is  not  nearly  so  great  in  hosiery  and  knit 
goods  as  in  cotton  and  woolen  manufacture. 

In  silk  manufacture  (Table  27),  the  number  of  estab- 
lishments from  1860  to  1905  has  multiplied  more  than  four- 
fold, the  capital  per  establishment  more  than  eightfold,  and 
the  output  per  establishment  more   than   fourfold.      This 


Table  27.     Silk  Manufactories  —  Comparative  Summary  with  Per- 
centages OP  Increase  from  1860-1905  by  Periods 


Yeah 

No.  OP 
Establish- 
ments 

1860.     .     .     . 

139 

1870.     .     .     . 
%  of  Increase . 

86 
-38.1 

1880.     .     .     . 
%  of  Increase . 

382 
344.2 

1890.     .     .     . 
%  of  Increase . 

472 
23.6 

1900.     .     .     . 

%  of  Increase . 

483 
2.3 

1905.     .     .     . 
%  of  Increase . 

624 
29.2 

%  of  Increase, 
1860-1905  . 

348.9 

Capital 


2,926,980 

6,231,130 
112.9 

19,125,300 
206.9 

51,007,537 
166.7 

81,082,201 
59.0 

109,556,621 
36.1 

3,643.0 


Value  of 
Products 


6,607,771 

12,210,662 

84.8 

41,033,045 
236.0 

87,298,454 
112.8 

107,256,258 
22.9 

133,288,072 
24.3 

1,917.1 


Capital 
PER  Es- 
tablish- 
ment 


21,057 

72,455 
244.1 

50,066 
-30.9 

108,066 
115.8 

167,872 
55.3 

175,571 
4.6 

733.8 


Value  of 
Products 
PER  Es- 
tablish- 
ment 


47,538 

141,984 
198.6 

107,416 
-24.3 

184,954 
72.2 

222,062 
20.1 

213,603 
-3.8 

349.3 


industry  affords  a  contrast  to  the  manufacture  of  hosiery 
and  knit  goods  and  wool  manufactories  in  the  great  increase 
in  the  number  of  establishments. 

Combined  textiles  (Table  28)  show  very  well  the  normal 
tendency  for  increase  of  concentration  per  establishment. 
The  number  of  establishments  from  1850  to  1905  increased 
fivefold,  the  capital  per  establishment  nearly  eightfold,  and 
the  value  of   the  output  per  establishment  over  sixfold. 

For  needles,  pins,  hooks,  and  eyes  (Table  29),  the  number 
of  establishments,  while  greater  than  in  1860,  is  less  than 
in  1870.  In  1905  as  compared  with  1860  the  capital  per 
establishment  is  sixfold  and  the  value  of  the  products  more 


FACTS  REGARDING  CONCENTRATION        57 


Table  28.  Combined  Textiles  (Cotton  Goods,  Cotton  Small  Wares, 
Hosiery  and  Knit  Goods,  Wool  Manufactures,  Silk  and  Silk 
Goods,  Flax,  Hemp  and  Jute  Products,  Dyeing  and  Finishing 
Textiles)  —  Comparative  Summary  with  Percentages  of  Increase 
FROM  1850-1905  BY  Periods 


Yeab 


1850  .     .     .     . 

1860.     .     .     . 
%  of  Increase  . 

1870.     .     .     . 

%  of  Increase  . 

1880  .     .     .     . 
%  of  Increase . 

1890  .     .     .     . 
%  of  Increase . 

1900  .     .     .     . 
%  of  Increase  . 

1905  .     .     .     . 
%  of  Increase . 

%  of  Increase, 
1850-1905   . 


No.  OF 
Estab- 
lish- 
ments 


3,025 

3027 
.1 

4,790 
68.2 

4,018 
-16.1 

4,276 
6.4 

4,312 
0.8 

4,563 
5.8 

50.8 


Capital 


112,513,947 

150,080,852 

33.3 

297,694,243 
98.3 

412,721,496 
38.7 

767,705,310 
86.0 

1,042,997,577 
35.8 

1,343,324,605 
28.8 

1094.0 


Value  of 
Products 


128,769,971 

214,740,614 
66.8 

520,386,764 
142.3 

532,673,488 
2.3 

759,262,283 
42.5 

931,494,566 
22.7 
1,215,036,792 
30.4 

843.6 


Capital 
PER  Es- 
tablish- 
ment 


37,195 

49,581 
33.3 

62,149 
25.3 

102,718 
65.3 

179,538 
74.8 

241,883 
34.7 

294,395 
21.7 

691.5 


Value  op 
Products 
PER  Es- 
tablish- 
ment 


42,568 

70,942 
66.7 

108,640 
53.2 

132,572 
22.0 

177,564 
33.9 

216,024 
21.7 

266,280 
23.3 

525.6 


Table  29.    Needles,  Pins,  Hooks,  and  Eyes  —  Comparative  Summart 
WITH  Percentages  of  Increase  from  1860-1905  by  Periods 


Yeab 


No.  of 
Establish- 


1860 .  .  . 
1870 .  .  . 
%  of  Increase 

1880 .  .  . 
%  of  Increase 

1890 .  .  . 
%  of  Increase 

1900 .  .  . 
%  of  Increase 

1905 .  .  . 
%  of  Increase 

%  of  Increase, 
1860-1905   . 


25 
48 
92.0 

45 
-6.3 

55 
22.2 

52 
-5.5 

46 
-11.5 

84.0 


Capital 


453,200 

801,050 

76.8 

1,564,738 
95.3 

2,269,707 
45.1 

4,617,552 
103.4 

5,331,939 
15.6 

1,076.5 


Value  of 
Products 


725,086 
1,225,436 
69.0 

1,748,101 
42.7 

2,109,469 
20.7 

3,237,982 
53.5 

4,750,589 
46.7 

555.1 


Capital 
PER  Es- 
tablish- 
ment 


18,128 
16,689 
-8.0 

34,772 
108.3 

41,267 
18.7 

88,799 
115.1 

115,911 
30.5 

539.4 


Value  of 
Products 
per  Es- 
tablish- 
ment 


29,003 
25,529 
-12.0 

38,847 
52.2 

38,354 
-1.3 

62,269 
62.3 

103,273 
65.8 

256.1 


58 


CONCENTRATION  AND  CONTROL 


than  threefold.  The  materials  are  Hght  as  compared  with 
the  value;  they  may  be  standardized;  and  thus  they 
illustrate  the  natural  tendency  toward  concentration.  The 
table  is  introduced  mainly  for  the  purpose  of  showing  that 
the  tendency  to  concentration  may  be  just  as  marked  with 
small  and  relatively  unimportant  articles  as  with  large 
and  important  ones. 

Pens  and  pencils  (Table  30)  are  industries  in  which  the 
number    of    establishments    has    steadily   increased,    being 


Table  30. 


Pens  and  Pencils  —  Comparative  Summary  with  Pehcbnt- 
AGES  OF  Increase  from  1860-1905  by  Periods 


Yeab 

No.  OP 
Establish- 
ments 

1860.     .     .     . 

15 

1870.     .     .     . 

32 

%  of  Increase . 
1880.     .     .     . 

113.3 

23 

%  of  Increase . 
1890.     .     .     . 

-28.1 
41 

%  of  Increase . 
1900.     .     .     . 

78.3 

55 

%  of  Increase . 
1905.     .     .     . 

34.1 

62 

%  of  Increase  . 
%  of  Increase, 

12.7 

1860-1905   . 

313.3 

Capital 


39,150 
704,400 
1,699.2 
894,247 
27.0 
4,116,247 
360.3 
3,671,741 
-10.8 
7,101,366 
93.4 

18,038.8 


Capital 

Value  op 

PER  Es- 

Products 

tablish- 

ment 

134,000 

2,610 

827,380 

22,012 

517.4 

743.2 

976,488 

38,880 

18.0 

76.6 

3,025,664 

100,396 

209.9 

168.1 

4,222,148 

66,758 

39.6 

-33.6 

7,673,777 

114,538 

81.8 

71.5 

5,626.7 

4,288.4 

Value  op 
Products 
PER  Es- 
tablish- 
ment 


8,933 

25,855 

189.4 

42,456 

64.2 

73,796 

73.8 

76,766 

4.0 

123,770 

61.2 

1,285.5 


sixtytwo  in  1905  as  compared  with  fifteen  in  1860.  The 
capital  per  establishment  and  the  value  of  product  per 
establishment  have  greatly  increased,  being  respectively 
fortythree  and  thirteen  times  greater  than  in  1860.  While 
like  needles,  pins,  hooks,  and  eyes,  so  far  as  magnitude  of 
establishments  is  concerned,  the  two  are  unlike  in  that  for 
pens  and  pencils  the  number  of  establishments  has  increased. 
General    statements.  —  The    foregoing    tables    show    that 


FACTS   REGARDING   CONCENTRATION        59 

while  concentration  has  not  taken  place  for  every  industry,  Concentra- 
in  the  great  majority  of  the  more  important  ones,  it  has  been  tioQ  general, 
steady  and  in  some  cases  amazing,  being  marked  by  great 
decrease  in  the  number  of  plants  and  relative  increase  in  the 
magnitude  of  the  plants  and  the  value  of  the  output. 

For  certain  industries,  while  the  business  done  by  the 
several  plants  has  increased,  the  actual  number  of  the  plants 
has  increased.  However,  in  most  cases  the  increase  in 
number  of  plants  is  much  smaller  than  the  increase  in  the 
value  of  the  product,  showing  that  even  in  the  cases  where 
there  is  increase  in  the  number  of  plants,  concentration 
has  been  taking  place. 

The  different  industries  differ  greatly  among  themselves 
in  the  ratio  between  the  capital  per  establishment  and  the 
value  of  the  product  per  establishment.     From  this  point  of 
view  for  1905  I  shall  classify  them  into  three  divisions : 
those  in  which  the  value  of  the  product  per  establishment  is 
less  than  the  capital  per  establishment  by  20  per  cent  or  Variable 
more;    those  in  which  the  value  of  the  product  per  estab-  between 
lishment  does  not  differ  more  than  20  per  cent  from  the  capital 
value  of  the  capital  per  establishment ;    and  those  in  which  ^^^^j^^^ 
the  value  of  the  product  per  establishment  is  greater  than  the 
capital  per  establishment  by  20  per  cent  or  more. 

The  industries  in  which  the  value  of  the  product  per  estab- 
lishment is  less  than  the  value  per  establishment  by  20  per 
cent  or  more  are  the  following :  coke ;  ship  building ;  clay 
products;  salt;  manufactured  ice;  paper  and  wood  pulp, 
agricultural  implements ;  beet  sugar ;  cotton  goods ;  and  of 
these,  in  the  cases  of  salt,  ice,  and  beet  sugar,  the  value  of  the 
output  is  less  than  half  the  capitalization. 

Those  industries  in  which  the  value  of  the  product  per 
establishment  does  not  vary  more  than  20  per  cent  from  the 
capital  per  establishment  are  the  following :  iron  and  steel ; 
electrical  machinery,  apparatus,  and  supplies ;  glass ;  lumber 
and  timber  products;  printing  and  publishing;  tobacco; 
leather ;  wool  manufactories ;  combined  textiles ;  needles, 
pins,  hooks,  and  eyes ;  and  pens  and  pencils. 

Those  industries  in  which  the  value  of  the  product  per  es- 


60  CONCENTRATION   AND  CONTROL 

tablishment  is  20  per  cent  or  more  than  the  capitalized  value 
per  establishment  are  the  following :  petroleum ;  butter, 
cheese,  and  condensed  milk ;  starch ;  slaughtering  and  meat 
packing ;  boots  and  shoes ;  leather  gloves  and  mittens ; 
hosiery  and  knit  goods ;  silk  manufacture ;  and  of  these,  in 
the  case  of  butter,  cheese,  and  condensed  milk,  and  meat, 
the  value  of  the  output  per  establishment  is  more  than  three 
times  as  great  as  the  capitalization,  and  for  boots  and  shoes 
more  than  twice  as  great.^ 

If  there  were  available  detailed  histories  of  each  of  these 
industries  so  that  we  might  know  to  what  extent  the  capitals 
of  the  different  classes  are  inflated  and  to  what  extent  they 
represent  substance,  the  very  great  differences  in  ratios  might 
be  partly  explained.  Possibly  for  the  slaughtering  industry 
and  boots  and  shoes,  we  have  industries  in  which  there  is  not 
over  capitalization ;  whereas  in  some  of  the  cases  where  the 
value  of  the  output  per  establishment  is  not  more  than  half 
as  great  as  the  capitalization  there  may  be  inflated  capitali- 
zation.^ 

Section  6 
FORMS  OF  ORGANIZATIONS 

The  development  of  the  laws  concerning  combinations  in 
this  and  other  countries  will  be  considered  in  another  place 
(see  Chapter  III) ;  but  it  is  to  be  said  that  the  principle  of 
statute  law,  prohibiting  restraint  of  trade,  has  had  a  powerful 
influence  in  the  forms  which  concentrations  of  industry  have 
taken.  Combinations  during  their  history  have  passed 
from  those  of  the  loosest  kind  to  those  in  which  there  is  com- 
plete unity  of  management.  The  different  kinds  of  associa- 
tions and  combinations  may  be  roughly  classified  as  follows : 

(1)  Informal  or  Formal  Associations  for  the  General  Protec- 
tion or  Advancement  of  a  Business. — These  are  illustrated  by 
the  various  business  associations.  Almost  every  industry 
has  such  an  association,  and  some  of  them  many.     Thus 

1  The  situation  regarding  concentration  of  industry  in  1900  is  fully  given 
in  the  Reports  of  the  United  States  Industrial  Commission  for  1901,  Vol.  I, 
p.  1325  ;  Vol.  XIII,  p.  1013  ;  Vol.  XIX,  pp.  595-724. 


FACTS   REGARDING   CONCENTRATION        61 

there  are  associations  of  brewers,  butchers,  bankers,  hard- 
ware men,  lumbermen,  cattlemen,  fruit  growers,  wine  makers, 
butter  makers,  and  of  practically  every  producing  industry. 
Similarly  there  are  associations  of  salesmen,  wholesalers, 
and  retailers  in  each  of  the  various  industries,  whether  they 
be  hardware,  drugs,  dry  goods,  or  groceries.  These  sales  asso-  Multitude 
ciations  may  be  national,  state,  or  local,  or  they  may  be  na-  o/associa- 
tional  with  state  and  local  branches.  The  importance  of 
the  local  associations  depends  upon  the  size  of  the  towTi.  The 
merchants'  or  manufacturers'  association  in  a  great  city  may 
have  large  importance,  and  the  retail  grocers'  association  in 
a  small  town  may  be  of  little  consequence.  Not  only  are 
there  associations  of  tradesmen  and  salesmen,  but  there  are 
associations  of  people  engaged  in  the  same  service,  teachers, 
dentists,  doctors,  laborers,  etc.  The  laborers'  association 
may  be  for  the  entire  country  or  for  a  definite  industry,  as,  for 
instance,  the  American  Federation  of  Labor,  and  the  Brother- 
hood of  Locomotive  Engineers. 

The  purpose  of  all  of  these  associations  is  to  advance  the 
interests  of  the  group  concerned.  This  is  done  in  the  loosest 
form  of  association  in  the  public  convention  at  which  views 
are  compared,  experiences  exchanged,  papers  presented,  the 
purposes  of  which  are  to  benefit  one  another  merely  by  the 
exchange  of  information,  without  any  implication  whatever 
that  any  one  will  feel  impelled  to  abide  by  any  view  pre- 
sented. 

Thus  the  members  of  the  retailers  associations  meet  and 
exchange  information  to  the  common  advantage.  One  of  Exchange  of 
the  items  concerning  which  information  is  exchanged  is  as 
to  the  manufacturers  that  sell  to  the  so-called  mail  order 
house,  the  severest  competitors  of  the  retailers.  The  pur- 
pose of  such  information  is  clearly  that  the  members  may 
buy  of  wholesalers  and  jobbers  that  do  not  deal  with  the 
mail  order  houses ;  but  now  the  retailers  feel  that  even  such 
exchange  of  information  with  no  implication  that  it  will  be 
used  as  indicated  comes  under  the  ban  of  the  Sherman  act.^ 

Another  aim  in  this  exchange  of  information  is  to  secure 
\        *  Hearing  of  Senate  Interstate  Commerce  Committee,  XIII,  p.  937. 


information. 


62  CONCENTRATION  AND  CONTROL 

common  prices  for  standard  articles.  There  need  not  be, 
indeed  usually  is  not,  a  formal  agreement  in  a  community 
or  association  upon  this  matter.  One  way  to  secure  a 
common  price  is  by  means  of  a  printed  list  or  catalog.^ 
Even  without  any  formal  agreement  among  the  dealers,  they 
all  understand  that  the  price  list  is  to  be  followed.  Some- 
times these  lists  are  prepared  by  the  retailers,  in  others  by 
the  wholesalers  or  jobbers.  In  the  latter  case  the  catalog 
gives  the  retail  prices  and  the  retailer  has  a  discount  from 
the  printed  price.  An  excellent  illustration  of  this  plan  of 
regulating  prices  is  furnished  by  wire  rope.  The  manu- 
facturers have  a  common  catalog  which  they  distribute  to 
the  retailers  and  the  retailers  all  sell  at  the  list  price.  The 
Southern  Wholesalers'  Association  printed  lists  of  prices  for 
the  information  of  its  members  until  enjoined  by  the  court. 
It  might  be  supposed  that  a  loose  arrangement  of  this  kind 
would  not  work;  but  as  a  matter  of  practice  it  is  success- 
ful. A.  F.  Huston  2  well  states  the  force  which  holds  men  to 
the  understanding  in  the  following  words:  "Let  me  say 
that  it  is  a  general  broad  principle  that  if  a  certain  price  is 
felt  to  be  a  fair  and  right  price,  each  one  for  himself  feels 
that  he  ought  to  maintain  that  price  and  not  vary  from  it 
to  the  detriment  of  his  fellows  without  he  should  let  them 
know,  but  without  any  agreement,  express  or  implied,  to 
that  effect."  However,  in  some  cases  the  understood  prices 
are  departed  from.  In  such  a  case,  if  one  decides  to  cut 
a  price,  the  others  may  remonstrate ;  but  if  he  persist,  ex- 
cept it  be  as  a  leading  line  for  a  short  time,  the  others  may 
meet  the  cut,  and  a  new  minimum  be  fixed.  Similarly 
as  a  result  of  informal  discussion  of  the  conditions  of  the 
market,  prices  are  put  up  or  down  in  unison. 

The  regular  and  uniform  rise  and  fall  of  the  price  of  anthra- 
cite during  any  year  illustrate  the  situation.  In  early  sum- 
mer the  price  is  the  lowest ;  it  is  increased  by  regular  incre- 
ments as  the  autumn  comes  on.  The  price  is  the  same  in  a 
given  community  from  each  dealer  for  purchases  at  a  given 

•  Investigation  U.  S.  Steel  Corporation,  10,  pp.  604-615. 
2  Investigation  U.  S.  Steel  Corporation,  11,  p.  693. 


FACTS  REGARDING  CONCENTRATION        63 


time  under  similar  circumstances.  The  result  is  almost  as 
certain  and  as  uniform  as  if  it  came  about  by  formal  agree- 
ment put  into  legal  form. 

The  stage  of  the  association  for  exchange  of  information 
easily  passes  into  the  second  phase  in  which  regulations  are 
adopted  by  the  association  to  control  the  actions  of  its  con- 
stituents ;  as,  for  instance,  methods  to  be  pursued  in  adver- 
tising, quotations,  and  even  scale  of  prices.  Actions  of  this 
kind  are  well  illustrated  by  the  brewers'  association,  which 
decides  as  to  the  price  to  be  charged  for  beer  in  the  retail 
trade,  issues  regulations  about  rebates  to  retailers,  and  even 
goes  into  such  minor  details  as  the  treating  of  drivers,  and 
the  extent  to  which  favors  are  to  be  given  by  advertising,  etc. 

When  the  members  of  an  association  are  numerous,  the 
extent  to  which  they  cooperate  in  these  respects  is  a  matter 
of  public  knowledge ;  but  in  case  an  industry  is  concentrated 
in  several  or  at  most  a  few  corporations,  a  secret  gentlemen's 
agreement  may  be  reached  which  acts  powerfully  in  restraint 
of  trade.  Thus  it  is  charged  that  at  the  weekly  meetings  of 
the  Chicago  packers,  which  in  the  past  regularly  occurred, 
a  definite  understanding  was  reached  as  to  field  of  operation, 
output,  prices,  and  margins,  which  were  to  obtain  for  the 
following  week. 

Similarly  it  is  charged  that  at  the  so-called  Gary  dinners 
an  informal  understanding  was  reached  concerning  these 
points  for  iron  and  steel.  What  happened,  according  to  Mr. 
E.  H.  Gary,  was  that  the  steel  makers  met  together  and  ex- 
changed information  with  reference  to  one  another's  affairs, 
their  outputs,  prices,  etc.,  in  order  that  each  might  have  full 
knowledge  of  the  transactions  of  other  producers  to  guide  his 
own  judgment.  In  the  case  of  the  Chicago  packers  there 
can  be  little  doubt  that  the  understanding  was  much  more 
definite  than  in  the  case  of  the  steel  conferees ;  but  so  far 
as  the  public  was  concerned,  the  results  were  substantially 
the  same ;  output  was  regulated,  prices  were  maintained. 

It  is  charged  also  that  the  group  of  men  who  control  the 
anthracite  industry  meet  regularly  to  fix  output  and  prices  at 
the  various  commercial  centers,  and  that  this  practice  has 


Regulations 
of  associa- 
tions. 


Secret 
agree- 
ments. 


Informal 
understand- 
ings 
binding. 


64 


CONCENTRATION   AND  CONTROL 


Pools. 


been  in  vogue  for  many  years.  That  this  charge  is  true  can 
scarcely  be  doubted,  although  it  might  not  be  easy  to  prove. 
Also,  there  is  no  doubt  that  the  railroads  in  the  early  stage  of 
their  cooperation  entered  into  agreements  and  understand- 
ings as  to  the  portion  of  business  to  be  handled,  the  prices  to 
be  charged,  and  rebates  to  be  allowed. 

Similarly  it  is  charged  that  produce  exchanges  agree  upon 
and  control  prices ;  thus  it  is  stated  that  the  association  of 
butter  makers  centering  in  Elgin  fix  prices  on  dairy  products, 
and  especially  butter,  for  a  large  part  of  the  country. 

The  character  and  influence  of  these  associations  have 
become  widely  known  through  the  prosecutions  by  the 
United  States  Attorney-General  under  the  Sherman  anti- 
trust act.  One  of  these,  the  Southern  Wholesalers'  Associa- 
tion, without  going  to  trial,  admitted  many  of  the  practices 
above  described  and  accepted  a  comprehensive  decree  enjoin- 
ing the  members  from  cooperating.  A  number  of  other  asso- 
ciations, illustrated  by  the  lumber  associations,  are  under  at- 
tack. These  cases  bring  clearly  to  light  the  real  significance 
of  a  form  of  organization  which  pervades  the  commerce  of 
the  country. 

While  associations  formal  and  informal  are  the  least  def- 
inite of  the  various  combinations,  they  are  probably  the 
most  important  because  their  scope  is  coextensive  with  the 
country  and  with  its  business. 

(2)  Formal  Agreements.  —  In  certain  lines  of  business, 
corporations  have  made  definite  agreements  about  the 
management  of  the  business  of  the  uniting  parties.  The 
arrangements,  usually  called  pools,  (1)  divided  the  produc- 
tion in  a  definite  manner  between  the  different  companies; 
(2)  divided  the  markets ;  (3)  regulated  the  sales  for  the  home 
market,  perhaps  leaving  freedom  in  the  matter  of  export ;  or 
(4)  placed  the  entire  profits  in  a  common  fund  or  pool  to  be 
divided  according  to  an  agreed  plan.  With  the  foregoing 
features,  there  sometimes  went  agreements  as  to  prices ;  but 
this  was  not  essential,  since  when  controlling  outputs,  dividing 
markets,  regulating  sales,  and  apportioning  profits,  it  is  to 
the  interest  of  all  to  keep  prices  at  a  high  level. 


FACTS   REGARDING  CONCENTRATION        65 

As  the  railways  developed  in  this  country,  competition 
became  so  severe  as  frequently  to  lead  to  operation  at  a  seri- 
ous loss.  Relief  from  this  situation  was  found  by  pools  Railway 
under  which  the  business  between  two  points  was  definitely  p°°^^- 
divided,  and  an  agreement  was  made  as  to  rates.  Thus  it 
might  be  agreed  that  each  of  the  trunk  lines  between  Chicago 
and  New  York  should  handle  a  definite  percentage  of  the 
business. 

The  pool  so  largely  used  by  the  railroads  was  also  exten- 
sively applied  to  the  industries.  Under  the  manufacturers, 
pools,  which  began  as  early  as  1860,  each  manufacturer  was  Industrial 
usually  allotted  a  certain  percentage  of  the  business.  A  p°°^^" 
manufacturer  who  received  more  than  the  allotted  percentage 
paid  into  the  pool  a  sufficient  amount  to  balance  the  excess ; 
while  the  manufacturer  who  received  less  than  his  percentage 
received  from  the  pool  a  sum  sufficient  to  make  up  the  defi- 
ciency. The  business  was  done  through  a  supervisor  who 
acted  in  the  capacity  of  a  clearing  house.  For  violation  of 
the  agreements  of  the  pool,  penalties  were  imposed  upon  its 
members  usually  in  the  way  of  fines  or  a  percentage  charge 
on  business  done  outside  the  pool. 

Pools  are  very  well  illustrated  by  the  numerous  agreements 
which  were  made  by  the  iron  companies  among  themselves  be- 
fore the  organization  of  the  United  States  Steel  Corporation.^ 

In  the  case  of  the  Michigan  Salt  Association,  the  organiza- 
tion developed  to  a  state  intermediate  between  the  pool  and 
the  trust.     This  association,  formed  in  1876,  soon  controlled 
85  per  cent  of  the  business  of  the  state.     The  stockholders  The 
were  the  salt  manufacturers  of  the  state;  and  each  manu-  g^^^^^^" 
facturer  was  allowed  shares  in  the  association  in  proportion  Association, 
to  his  production.     The  capitalization  of  the  association  was 
nominal.     The  association  fixed  the  output  of  salt  for  each 
manufacturer  and  managed  the  entire  selling  business,  includ- 
ing the  determination  of  prices.     The  manufacturer  gave  up 
the  entire  management  of  his  business  to  the  Salt  Association, 
excepting  the  running  of  his  manufactory .^    (See  pp.  101-103.) 

» Investigation  U.  S.  Steel  Corporation,  24,  pp.  1813-1817. 
^  "  Pools  and  Trusts,"  Quarterly  Review,  Vol.  199,  p.  185. 
F 


66 


CONCENTRATION  AND  CONTROL 


Fruit 

growers' 

exchanges. 


Advantages 
of  exchange. 


Very  analogous  in  form  of  organization  and  conduct  of 
business  to  the  Micliigan  Salt  Association,  long  since  dead, 
are  numerous  fruit  growers'  exchanges.  Some  of  these  ex- 
changes are  district  in  their  character,  precisely  as  was  the 
Michigan  Salt  Association.  In  others  the  district  exchanges 
first  formed  have  gotten  together  into  a  national  exchange. 
In  some  instances  such  an  exchange  handles  as  much  as  80 
per  cent  of  the  entire  crop.  The  stockholders  of  the  ex- 
change for  a  definite  fruit  or  group  of  fruits  are  those 
engaged  in  growing  the  product.  The  exchange  is  usually 
a  selling  agency,  charging  commission  for  its  services. 
While  a  fruit  grower  may  sell  a  part  of  his  crops  other 
than  through  the  agency,  he  pays  the  same  commission  that 
he  would  if  the  entire  crop  were  disposed  of  by  the  exchange. 

When  the  crop  of  fruit  begins  to  come  upon  the  market,  the 
exchange  sets  a  price  for  a  certain  period,  which  may  be 
raised  at  the  beginning  of  a  second  period  and  again  at  a 
later  period.  For  fruits  that  keep  well  the  usual  plan  is  to 
start  the  price  sufficiently  low  so  that  the  fruit  will  begin 
to  be  marketed  promptly,  and  to  advance  the  price  rapidly 
enough  so  that  there  will  be  a  supply  to  the  normal  termina- 
tion of  the  season.  For  some  fruits  the  prices  for  early 
products  may  be  high;  later  the  prices  are  reduced;  and 
still  later,  when  the  height  of  the  season  is  over,  they  are 
again  advanced.  If  prices  be  placed  too  high,  some  of  the 
fruit  will  go  to  the  dump  at  the  end  of  the  season ;  if  they 
be  placed  too  low,  there  will  not  be  a  sufficient  amount  to 
supply  the  market  during  the  latter  part  of  the  season. 
To  carry  out  wisely  the  above  plans,  careful  estimates  are 
made  of  any  crop  for  the  year.  Inspectors  are  employed 
by  the  exchange  to  supervise  the  harvesting,  storing,  sort- 
ing, packing,  and  shipping  of  the  fruit  so  as  to  get  definite 
and  uniform  grades,  and  to  have  the  fruit  shipped  under 
the  most  favorable  circumstances.  The  growers  retain  their 
own  brands. 

The  fruit  exchanges  do  not  regulate  output ;  they  do  con- 
trol prices ;  they  aim  to  get  the  product  as  directly  as  possible 
to  the  jobbers  and  grocers  without  falling  into  the  hands  of 


FACTS  REGARDING   CONCENTRATION        67 

speculators.  The  marketing  costs  are  lessened  by  the  ex- 
change. Prices  start  at  a  reasonable  level  and  have  graded 
changes  so  that  the  producers  are  sure  of  a  fair  return. 
The  public  cannot  be  disregarded  in  fixing  prices,  since  one 
kind  of  fruit  competes  with  another,  and  since  to  a  certain 
extent  fruit  is  an  abundant  but  desirable  luxury  which  will 
not  be  disposed  of  if  the  prices  are  excessive.  Products 
are  inspected  and  standardized.  It  would  seem  that  the 
credits  due  the  fruit  exchanges  are  considerable;  that  the 
public  is  better  off  than  under  the  old  hit  or  miss  methods  of 
disposal  of  the  crop  which  have  sometimes  been  character- 
ized as  mob  methods;  and  that  exchanges  should  be  en- 
couraged and  retained. 

These  fruit  growers'  exchanges  are  illustrated  by  the 
Fruit  Growers'  Association  of  California.^  For  this  ex- 
change the  contract  between  the  grower  and  the  local 
association  requires  that  the  grower  shall  sell  only  to  the 
association,  and  that  if  he  fails  to  pack  and  dehver  his  fruit 
within  five  days  after  demand  is  made  upon  him  the  associa- 
tion may  enter  the  orchard,  take  possession  of  the  premises, 
pick,  pack,  and  market  the  fruit,  all  at  the  expense  of  the 
owner.  The  district  exchanges  of  this  association  are  under 
contract  to  sell  only  to  the  general  exchange  and  as  called  for 
by  that  exchange.  It  is  perfectly  clear  that  the  purpose  of  the 
citrous  fruit  growers  of  California  is  the  control  of  the  market. 

Other  lines  of  cooperation  ^  among  the  farmers  are  the 
elevator  systems  for  marketing  grain  and  the  warehouse 
exchanges  for  marketing  cotton.  It  is  said  by  Mr.  E.  H. 
Coller  that  there  are  in  the  neighborhood  of  twenty-five 
hundred  or  three  thousand  buying  or  selling  organizations  in 
the  United  States  which  are  in  the  interests  of  better  prices.^ 

Mr.  T.  J.  Brooks,  representing  the  Farmers'  Educational 
Cooperation  Union,  suggests  that  since  these  farmers'  co- 
operative associations  are  so  advantageous  they  should  be 
exempted  from  the  prohibition  of  the  Sherman  antitrust  law.'* 

*  Hearings,  Interstate  Commerce  Committee,  XXVI,  pp.  2336—2353. 

2  Edward  G.  Dunn,  Farm  and  Fireside,  March  16,  March  30,  April  13, 1912. 

'  Hearings,  Interstate  Commerce  Committee,  p.  1344.         *Ibid.,  p.  2337. 


68  CONCENTRATION   AND  CONTROL 

This  is  an  appropriate  suggestion,  for  it  can  be  asserted 
without  fear  of  contradiction  that  fruit  exchanges  organized 
as  indicated  are  as  clearly  in  violation  of  the  Sherman  anti- 
trust law  as  the  selling  agencies  of  manufacturers  which  have 
been  declared  to  be  illegal  by  the  courts. 

If  the  farmers'  selling  agencies  are  admitted  to  be  bene- 
ficial to  the  farmers  and  to  the  public,  it  may  be  said  that 
fully  as  strong  a  case  may  be  made  for  other  selling  agencies, 
among  which  is  coal.  Yet  when  a  number  of  coal  operators 
whose  market  was  Chicago  conceived  the  idea  of  establish- 
ing a  seUing  agency  which  did  not  combine  more  than  four  . 
per  cent  of  the  consumption  of  that  market,  they  were 
warned  by  the  federal  authorities  that  such  action  would 
be  combination  in  restraint  of  trade.^ 

The  pools  in  the  seventies  and  early  eighties  occupied  an 
important  place  in  the  development  of  combination;  their 
chief  reign  was  from  1879  to  1887,  about  ten  years.  With 
the  passage  from  the  partnership  to  the  corporation,  the 
principles  of  the  law  applicable  to  individuals  and  to  partner- 
ships were  carried  over  to  corporations.  But  the  pool  was 
in  effect  a  partnership  of  corporations,  or  at  least,  if  not  a 
partnership,  such  cooperation  of  corporations,  as  to  amount 
substantially  to  the  same  thing.  Partnerships  of  corpora- 
tions were  illegal,  and  consequently  the  pool  contracts  were 
non-enforcible.2 

The  non-enforcible  agreement  gave  the  pools  a  fundamental 
weakness.  Any  member  that  became  dissatisfied  could 
withdraw  at  any  time.  Also,  since  the  courts  refused  to  en- 
force the  arrangements  made  under  pools,  compliance  with 
the  regulations  depended  exclusively  upon  the  honor  of  those 
entering  them ;  and,  in  consequence,  there  were  frequent 
secret  violations  of  the  pool  agreements.  A  railroad  or  a 
manufactory  would  exceed  its  percentage,  or  in  order  to  get 
business  would  reduce  rates.  Further  the  men  and  corpora- 
tions entering  into  the  pools  were  in  danger  of  penalties  from 
the  courts.     As  we  have  already  seen,  the  selling  agency, 

'  Hearings,  Interstate  Commerce  Committee,  XXVI,  pp.  2320-2321. 
»  "  Trusts  of  To-day,"  G.  H.  Montague,  pp.  144-145. 


FACTS   REGARDING    CONCENTRATION        69 

having  many  of  the  weaknesses  of  the  pools,  still  retains 
an  important  place  in  business. 

(3)  Trusts.  —  Since  the  pool  was  a  failure,  in  order  to 
attain  the  objects  striven  for  by  it,  the  trust  was  devised. 
Under  the  trust,  each  unit  of  the  combination  transferred  its 
stock  to  trustees.  Thus  the  entire  stock  of  the  constituent 
companies  was  held  by  a  group  of  trustees  who  had  com- 
plete authority  over  the  business  of  all  the  companies  enter- 
ing into  the  trust.  An  establishment  or  company  retained 
its  own  officers  and  conducted  its  business,  but  under 
the  direction  of  the  trustees,  as  to  line  of  product,  amount 
of  output,  and  price.  The  trust  was  able  to  prevent  over- 
building and  overproduction,  to  prevent  competition  in 
price  between  its  units,  to  apportion  business,  to  consoli- 
date bu^dng  and  selling,  and  thus  gave  all  the  advantages 
of  unity  of  organization,  as  described,  pp.  8-20,  due  to 
concentration  of  industry.  Well-known  types  of  this 
organization  were  the  Standard  Oil  trust,  the  sugar  trust, 
the  cotton-seed  oil  trust,  the  whisky  trust.  The  great 
period  of  the  trust  was  from  1888  to  1897. 

If  the  pool  was  a  partnership  of  corporations,  it  was  even 
more  clear  that  the  board  of  trustees  controlling  the  business 
of  a  number  of  corporations  through  their  trust  certificates 
was  such  a  partnership.  In  consequence  of  this,  in  the  late 
eighties  trusts  were  declared  to  be  illegal,  and  this  led  in  the 
early  nineties  to  the  next  stage  of  combination. 

(4)  Holding  Corporations.  —  Under  the  trust  each  of  the 
constituent  companies  was  an  independent  legal  entity. 
The  stock  was  simply  placed  in  the  hands  of  the  trustee  for 
management.  In  the  holding  corporation,  the  stock  is 
transferred  to  the  holding  concern  so  that  this  corporation 
actually  owns  the  stock  of  the  constituent  companies. 
So  far  as  management  and  operation  are  concerned, 
the  situation  is  precisely  the  same  as  under  the  trust  and 
the  advantages  the  same,  only  the  constituent  companies 
are  subsidiary  companies  instead  of  nominally  independent. 
The  subsidiary  company  maintains  its  officers,  carries  on  its 
business,  and  competes  so  far  as  efficiency  is  concerned  with 


70 


CONCENTRATION   AND  CONTROL 


the  other  companies  of  the  combination;  but  as  to  nature 
and  quantity  of  output  and  price,  the  policy  is  completely 
controlled  by  the  corporation  of  which  it  is  a  constituent 
member.  The  era  of  the  holding  corporation  began  in  the 
nineties,  and  has  extended  through  that  decade  and  the  first 
decade  of  the  twentieth  century.  Great  examples  are  the 
Standard  Oil  Company  and  the  United  States  Steel  Cor- 
poration. 

While  some  of  the  holding  corporations  have  remained 
merely  managing  companies,  others  of  them,  and  some  of  the 
more  important,  have  also  become  manufacturing  companies. 
In  these  instances  some  plants  are  under  the  direct  manage- 
ment of  the  directors  of  the  corporation,  while  other  parts 
of  the  business  are  rim  by  subsidiary  companies.  This  stage 
of  development  is  intermediate  between  the  strictly  holding 
corporation  and  the  merger,  next  to  be  spoken  of. 

Under  the  common  law  the  stock  of  one  corporation  could 
not  be  held  by  another;  therefore  the  holding  corporation 
was  declared  to  be  invalid.^  This  situation  was  met  by 
the  enactment  of  corporation  laws  under  which  it  was  valid 
for  a  corporation  to  hold  stock  of  other  corporations.  The 
first  of  the  states  thus  to  reverse  the  common  law  principle 
was  New  Jersey.  She  has  been  followed  by  several  others, 
notable  among  which  are  Delaware,  West  Virginia,  and 
Maine.  The  liberal,  not  to  say  lax,  corporation  laws  of 
these  states  have  led  to  the  holding  corporations  being 
organized  under  their  laws,  and  mainly  under  the  laws  of 
New  Jersey  and  Delaware.  According  to  Frederick  W. 
Kelsey,  the  state  of  New  Jersey  profits  to  the  extent  of 
over  $3,000,000  per  annum  because  of  its  pioneer  position 
in  passing  liberal  corporation  laws. 

However,  the  corporations  which  are  in  whole  or  in  part 
holding  companies,  organized  under  the  laws  of  these  states, 
are  now  being  attacked  in  the  United  States  Court.  In 
1911  orders  were  given  for  the  dissolution  of  the  Standard 
Oil   and   the   American    Tobacco   companies,   the   first   of 

1  People  V.  Chicago  Gas  Trust  Co.,  130  111.  268;  also  other  cases. 
^  Hearings,  Interstate  Commerce  Committee,  XVII,  p.  1358. 


FACTS  REGARDING   CONCENTRATION        71 

which  was  strictly  a  holding  company  and  the  second  of 
which  was  both  a  manufacturing  and  holding  company. 
(See  pp.  181-187.)  Many  other  holding  corporations  are 
now  attacked  by  the  Attorney-General  of  the  United  States 
and  must  fight  for  their  existence. 

The  holding  corporation  began  in  1897,  but  the  great 
consolidations  did  not  begin  until  in  1899,  since  which  time 
the  holding  corporation  has  been  the  dominant  form  of 
consolidation. 

(5)  Complete  Merger.  —  This  is  the  final  stage  in  concen- 
tration of  management.  The  stock  of  the  constituent 
companies  of  the  combination  is  actually  bought  in  and 
canceled,  the  only  stock  being  that  of  the  master  company. 
If,  for  instance,  the  different  companies  of  the  United  States 
Steel  Corporation  —  the  Federal  Steel,  the  Carnegie  Steel, 
and  others  —  cease  to  exist  by  their  stock  being  canceled  Coming 
and  stock  of  the  Steel  Corporation  be  the  only  existing  issue,  °^  *^^  , 

'■  ^  o  J    complete 

we  should  have  the  final  stage  of  corporation  management  merger, 
for  this  gigantic  company. 

Since  the  recent  decisions  of  the  United  States  Supreme 
Court  (see  pp.  180-181),  which  seem  to  indicate  that  holding 
companies  will  be  in  a  stronger  position  if  they  are  actually 
manufacturing  companies,  it  is  easy  to  predict  that  the  great 
consoHdations,  now  forming,  so  far  as  practicable  will  become 
unified  corporations.  The  merger  began  to  become  impor- 
tant about  1904,  and  since  that  time  its  growth  has  steadily 
continued,  although,  as  already  pointed  out,  the  holding 
company  is  still  the  dominant  form  of  concentration. 

Just  as  the  pool,  the  trust,  and  the  holding  corporation 
have  been  successively  attacked  in  the  courts,  there  can  be  The 
little  doubt  that  the  great  merger  will  also  there  be  attacked.  ^7^^  °^ 
Indeed,  for  intrastate  commerce  such  attack  has  already  been 
begun.  For  instance,  the  Diamond  Match  Company  which 
bought  outright  the  properties  of  competing  concerns  engaged 
in  the  manufacture  of  matches,  was  declared  to  be  an  illegal 
monopoly  in  the  state  of  Michigan.^  Similar  attack  is  likely 
to  follow  for  interstate  commerce  under  the  Sherman  act. 

1  Richardson  v.  Buhl,  77  Mich.  632. 


72  CONCENTRATION  AND  CONTROL 

The  laws  General  Statements.  —  It  is  to  be  noted  that  the  develop- 

ceierated  ment  from  pool  to  trust,  from  trust  to  holding  company, 
consolida-  from  holding  company  to  complete  consolidation,  has  been 
accelerated  by  the  laws  which  exist  in  restraint  of  trade. 
The  dissolution  of  pools  by  the  courts  led  to  the  trust ;  the 
dissolution  of  the  trust  led  to  the  holding  corporation ;  the 
dissolution  of  the  holding  corporation  at  the  present  time  is 
now  leading  to  the  consolidated  company. 

The  actions  which  have  led  to  the  above  development 
have  been  partly  under  common  law  and  partly  under 
statute  law.  The  common  law,  forbidding  unreasonable 
restraint  of  trade,  may  be  invoked  to  prevent  any  form  of 
pool,  trust,  holding  company,  or  merger,  which  goes  to  the 
point  of  producing  monopoly.  Actions  under  statute  law, 
to  be  successful,  must  of  course  comply  with  its  terms, 
somewhat  variable  in  the  different  states.  (See  pp.  192-200.) 
By  the  above  statements  it  is  not  meant  that  the  law 
against  restraint  of  trade  is  the  only  cause  which  has  led  to 
other  accel-  the  development  described.  As  we  have  seen,  pp.  192-200, 
fierce  and  unrestricted  competition  has  led  directly  to  com- 
bination, or  else  elimination  of  the  weaker  by  destruction, 
imtil  the  remainders  are  reduced  to  a  manageable  number, 
usually  all  strong  and  at  least  of  the  same  order  of  magni- 
tude, if  not  exactly  the  same  size,  when  they  combine.  Also 
there  are  other  important  factors  leading  to  combination 
which  have  been  discussed,  pp.  8-20. 


Section  7 
THE  KINDS   OF  COMPETITION 

There  are  different  kinds  of  competition.  For  present 
purposes  the  more  important  are,  competition  in  quality, 
competition  in  price,  and  competition  in  service. 

(1)  Competition  in  Quality.  —  The  better  the  quality,  the 
easier  it  is  to  do  business.  For  certain  articles  the  quality 
is  easily  determined  and  so  becomes  a  very  important  factor 
in  competition;   for  other  things  it  is  not  easy  to  settle. 


erating 
causes 


FACTS  REGARDING   CONCENTRATION        73 

With  such  articles  as  tea,  tobacco,  coffee,  the  quality  is 
not   an   absolute    thing,    but    depends  upon   the  taste  of  The  same 
the  customer.     We  frequently  hear  the  story  of  the  retail  *^pg^ 
dealer  who  takes  a  chest  of  a  poor  or  medium  quality  of  tea,  prices, 
divides  the  same  among  three  caddies  upon  which  he  puts 
prices  of  thirty-five  cents,  sixty-five  cents,  and  one  dollar 
per  pound.     A  person  who  can  afford  to  pay  but  thirty- 
five  cents  quickly  takes  that  kind;  the  person  who  is  able 
to    afford    somewhat    more    takes    from   the  intermediate 
caddie ;  the  third,  to  whom  the  matter  of  a  dollar  is  of  little 
consequence,  at  once  takes  the  tea  having  the  highest  price. 

There  is  no  doubt  that  this  sort  of  performance  has  occurred 
and  is  occurring  at  the  present  time  upon  an  extensive  scale 
in  thousands  of  retail  shops. 

If  for  such  articles  as  tea,  tobacco,  and  coffee  there  is  no 
definite  standard,  this  is  even  more  markedly  so  with  the 
so-called  "articles  de  Paris,"  or  if  we  use  the  American  term, 
"  Yankee  notions."  There  is  no  standard  by  which  the  Yankee 
price  of  a  lady's  hat  can  be  fixed.  The  price  that  is  charged  ^°*io^- 
usually  depends  more  upon  the  make-up  than  upon  the  cost 
of  its  materials.  Indeed  in  this  class  of  goods  the  artistic 
quahty  enters,  or  if  not  the  artistic  quality  at  least  the  con- 
ventional quality,  which  itself  has  a  market  value,  and  this 
makes  impossible  any  standardization.  The  price  of  a 
hat  is  very  largely  fixed  with  reference  to  what  the  traffic 
will  bear.  Thus  a  lady's  hat  in  a  towTi  in  which  the  cus-  The  value 
tomer  is  able  to  pay  $50  might  have  a  price  one  fifth  of  ^^^  ^^  ^ 
that  amount  in  a  towTi  in  which  the  customer  was  able 
to  pay  only  $10.  Another  illustration :  The  success  of  the 
manufacturer  of  silver  articles  who  wishes  to  sell  his  goods 
in  India  will  depend  very  largely  upon  producing  forms 
which  please  the  Indian  taste.  Thus  for  many  articles, 
whether  or  not  a  sale  is  made  depends  not  only  upon  the 
cost  of  the  material  in  the  article,  but  upon  whether  it  pleases 
the  customer.  Competition  in  these  lines  of  business  is  not 
close  because  there  is  no  basis  upon  which  to  compare  prices. 

From  the  class  of  articles  in  which  success  in  business 
depends  not  upon  standardization  or  upon  cost,  but  upon 


74 


CONCENTRATION  AND  CONTROL 


adaptability  to  the  customer,  we  have  every  stage  to  those 
in  which  the  material  of  tlie  article  becomes  the  chief  factor. 

(2)  Competition  in  Price.  —  When  we  come  to  deal  with 
articles  the  quality  of  which  may  be  definitely  determined 
competition  immediately  enters  in  price,  and  becomes  more 
and  more  important  as  we  approach  standard  products. 
Granulated  sugar  is  a  standard  article,  which  is  the  same 
whether  purchased  of  one  dealer  or  another;  the  same  is 
true  of  oil,  which  has  a  certain  fireproof  test ;  and  to  a  large 
extent  is  true  of  cement  and  coal,  at  least  they  may  be  made 
to  meet  standard  tests.  The  same  is  true  of  the  more  im- 
portant forms  of  steel  rails,  structural  forms,  etc.,  and  for 
many  other  products.  For  articles  in  which  quality  is 
standardized,  competition  enters  mainly  in  the  matter  of 
price.  These  standard  articles,  as  we  have  seen,  are  also 
those  which  usually  have  very  wide  use,  and  are  those  which 
are  especially  subject  to  combination. 

Competition  in  price  is  the  one  in  which  the  public  as  a 
whole  is  most  deeply  interested.  Indeed,  this  is  so  dominant 
in  the  minds  of  many,  that  the  securing  of  a  fair  price  is 
regarded  as  the  sole  purpose  of  the  competitive  system.  In 
purchasing,  the  price  that  one  can  afford  to  pay  is  the  para- 
mount consideration  for  all  but  a  minute  fraction  of  the 
people.  This  applies  alike  to  the  man  or  woman  buying  the 
necessities  of  life  for  the  family  and  to  the  lady  in  the  middle 
walks  of  life  purchasing  clothes  or  jewels.  The  number  of 
people  who  can  afford  to  ignore  the  question  of  price  is  less 
than  one  per  cent  of  the  population.  It  is  the  general  belief 
that  competition  is  the  best  means  of  securing  a  fair  price 
that  has  held  many  with  unswerving  faith  to  the  competitive 
system.^ 


'  The  best  formvilation  of  this  faith  which  I  have  seen  is  that  of  General 

Roger  A.  Pryor,  as  follows :  — 

"1.  Competition  between  buyers  of  the  raw  material  enhances  the  price 
to  the  producer. 

"  2.  Competition  between  sellers  of  the  manufactured  article  reduces  its 
price  to  the  consumer. 

"  3.  Reduction  of  price  multiplies  the  number  of  consumers. 

"4.  Increase  of  consumption  stimulates  production  to  supply  the  in- 
creased demand. 


FACTS  REGARDING  CONCENTRATION        75 

(3)  Competition  in  Service.  —  In  addition  to  competition 
in  quality  and  in  price  there  is  competition  in  service.  This 
is  best  illustrated  by  those  cases  in  which  competition  does 
not  exist  for  the  first  two.  Thus  in  standard  articles  in  a 
town,  such  as  ice,  there  is  no  competition  in  quality ;  there 
is  no  competition  in  price;  the  only  competition  is  in 
service.  Similarly  for  railways,  now  that  competition  in 
prices  has  ceased,  competition  is  reduced  to  the  nature  of 
the  service,  —  the  number  of  trains  run,  the  convenience 
of  the  schedules,  the  excellence  of  the  cars,  etc. 

It  is  in  the  matter  of  competition  in  service  that  the 
personal  element  largely  enters.  Where  quality  is  stand- 
ardized and  the  price  is  the  same,  the  decision  as  to  where 
one  shall  deal  depends  upon  the  agreeable  qualities  of  the 
firm.  Are  the  employees  polite  and  considerate?  Is  the 
service  promptly  rendered  ?  These  factors  are  so  important  The 
that  agents  having  a  pleasant  personality  and  a  persuasive  eig^^° "^  ^^ 
way  of  putting  things  are  highly  paid  by  corporations,  their  competition, 
sole  business  being  to  show  that  the  service  rendered  will  be 
of  the  highest  quality  and  the  attention  of  the  best.  So 
important  is  this  factor  of  service  that  many,  indeed  a 
majority,  of  the  people  are  influenced  by  it  in  the  selection 
of  the  firm  with  which  they  will  deal ;  and  with  the  well-to- 
do  it  is  frequently  the  dominating  consideration.  Even 
where  competition  in  quality  and  in  price  are  eliminated  there 
may  be  the  keenest  competition  in  service. 

"  5.  Increase  of  production  impliea  an  increase  in  the  employment  of 
labor. 

"  6.  Competition  between  the  employers  of  labor  enhances  the  wages  of 
labor. 

"  7.  Enhancement  of  the  wages  of  labor  involves  the  material  and  moral 
amelioration  of  the  condition  of  the  laboring  class. 

"  8.  Competition  to  sell  stimulates  to  improvements  in  the  quality  of  the 
article  offered. 

"  9.  Competition  to  sell  urging  reduction  in  the  cost  of  the  article, 
ingenuity  is  quickened  to  the  invention  of  expense-saving  and  labor-saving 
machinery,  and  so  a  stimulus  is  applied  to  the  progress  of  the  useful  arts  and 
sciences. 

"  In  short,  competition  ministers  to  the  welfare  of  all  classes  of  the  com- 
munity, and  augments  the  resources  and  power  of  the  state.  But  the  evQ. 
of  excessive  competition  is  counteracted  and  arrested  by  the  principle  of  self- 
interest  and  the  operation  of  the  law  of  supply  and  demand.". 


76 


CONCENTRATION   AND  CONTROL 


Section  8 


THE  BREAK-DOWN   OF   COMPETITION 


The  Faith  in  Competition.  —  Competition  for  the  control  of 
prices  and  quality  of  goods  has  been  a  faith  which  has  been 
believed  in  by  the  great  majority  of  people  of  America ;  it  has 
been  the  fundamental  principle  of  the  common  and  statute 
law  upon  which  our  court  decisions  controlling  trade  have 
been  built  up.  Every  proposal  to  legalize  cooperation  in 
trade  has  been  stoutly  resisted  as  interfering  with  the  in- 
flexible law  of  competition,  the  bulwark  of  our  industrial 
liberty. 

The  producer  may  do  as  he  pleases  with  reference  to 
quality ;  he  may  ask  the  price  he  can  get ;  but  he  cannot 
combine  with  another  producer  in  the  regulation  of  price  or 
do  anything  which  may  be  interpreted  to  interfere  with 
complete  independence  in  trade.  The  theory  is  that 
the  quality  will  be  kept  up  and  the  price  kept  down  by 
competition,  and  that  the  purchaser  needs  no  further  pro- 
tection. 

The  Failure  of  Competition  adequately  to  regulate  Quality.  — 
This  faith  in  the  power  of  competition  has  gone  so  far  in  the 
past  that  any  manufacturer  might  call  an  article  by  any  name 
he  pleased,  provided  the  name  did  not  have  a  trade  mark, 
regardless  of  whether  or  not  it  had  any  relation  to  the  prod- 
uct so  labeled.  An  article  could  be  called  pure  fruit  jelly 
and  have  no  fruit  in  it ;  it  could  be  called  corn  whisky  and 
not  a  grain  of  corn  be  used  in  its  manufacture ;  it  could  be 
named  strained  honey  and  a  bee  never  have  had  anything  to 
do  with  its  making ;  it  could  be  called  maple  sirup  and  never 
a  drop  of  maple  sap  have  entered  it;  it  could  be  called 
butter  and  have  no  relation  with  milk  or  cream;  it  could 
be  called  boneless  chicken  and  consist  of  immature  veal. 
A  hundred  other  illustrations  could  be  given.  As  already 
indicated,  if  the  producer  could  to  his  own  advantage  use 
names  that  had  no  relation  to  the  product,  he  did  so.  The 
purchaser  was  not  obliged  to  buy.     If  he  wished  an  article 


FACTS   REGARDING   CONCENTRATION        77 

which  had  a  relation  to  the  name,  he  was  to  ascertain  this 
for  himself. 

These  practices  have  obtained  both  for  intrastate  and 
interstate  commerce  until  within  a  few  years;  but  now 
a  large  number  of  states  (see  p.  245)  have  pure  food 
laws.  Most  of  these  laws  are  comprehensive  in  their  char-  Pure  food 
acter  and  they  apply  to  all  foods,  drugs,  and  drinks.  ^^^' 
To  illustrate,  it  is  no  longer  possible  to  sell  oleomargarine 
as  butter ;  indeed,  it  is  not  possible  in  some  of  the  states 
to  color  oleomargarine  in  such  a  manner  as  to  make  it 
appear  like  butter  to  the  user.  Finally,  after  many  years  of 
struggle  against  tremendous  opposition,  a  comprehensive 
pure  food  law  was  passed  in  1906  by  Congress,  under  which 
the  same  principles  which  had  been  applied  in  some  of  the 
states  for  intrastate  commerce  were  applied  to  interstate 
commerce. 

In  addition  to  the  pure  food  laws,  some  states  have  enacted 
laws  prohibiting  the  importation  of  weed-infested  seed, 
regulating  the  importation  of  nursery  stock,  especially  to 
prevent  the  spread  of  insect  pests,  and  requiring  that  fer- 
tilizers shall  meet  definite  standards. 

Thus  for  food  and  drugs  it  may  now  be  said  to  have 
become  an  accepted  principle  that  competition  in  the  control 
of  quality  has  broken  down,  and  similarly  that  competition 
has  not  furnished  sufficient  protection  in  certain  other  classes 
of  commodities.     For  protection  to  the  customer  in  these  Competition 
matters  of  fundamental  importance  we  now  understand  that  x^^^L^^ 
we  must  depend  upon  regulation.     This  regulation  has  for  quality, 
its  basis  law ;  but  the  success  of  the  laws  has  been  dependent 
upon   the    creation   of    special    machinery   other   than   the 
courts  for  their  enforcement,  viz.,  administrative    commis- 
sions, etc.     (See  pp.  245-247.) 

While  there  is  a  wide  range  of  articles  in  which  competition 
as  a  regulator  has  been  abandoned,  there  are  many  articles  in 
which  competition  is  left  as  the  guard.     Thus  a  dealer  may 
sell  cloth  as  pure  silk  which  is  largely  composed  of  cotton ;  he   The  feeble 
may  sell  cotton  as  linen ;    he  may  sell  shoddy  as  woolen,   e^^^^  °[. 

,  .  7  ^  J  competition 

While  these  things  may  be  contrary  to  law,  the  public,  as  a 


78 


CONCENTRATION  AND  CONTROL 


Public 
utilities  do 
not  compete 
in  price. 


matter  of  fact,  is  wholly  unprotected ;  for  the  law  is  not  en- 
forced. Quality,  so  far  as  it  is  satisfactorily  controlled,  is  se- 
curable  only  through  law  as  administered  by  commissions  or 
other  special  officers  under  a  broad  exercise  of  the  police  power. 

The  Failure  of  Competition  adequately  to  regulate  Price.  — 
During  the  same  time  that  competition  has  ceased  to  control 
quality  there  has  been  a  break-down  of  competition  in  the 
control  of  prices.  This  is  now  admitted  for  the  so-called 
public  utilities.  It  was  the  theory  in  the  early  days  of 
railroad  building  that  we  must  get  as  many  lines  as  possible 
and  have  them  compete  in  charges.  The  frightful  wastes 
of  that  method,  bankruptcy,  receiverships,  financial  depres- 
sion, alternately  excessively  high  and  low  rates,  show  that 
for  this  line  of  business  competition  in  price  is  a  hopeless 
failure;  and  it  is  now  a  tacitly  accepted  doctrine  that  so 
far  as  railroads  are  concerned,  prices  for  the  same  manner  of 
service,  whether  freight  or  passenger,  between  two  points  is 
to  be  the  same  over  the  different  lines.  This  is  done  through 
mutual  understanding  of  the  supposed  competing  lines. 
That  a  half-dozen  railroads  between  New  York  and  Chicago 
could  have  the  same  complicated  freight  schedules  for  all 
classes  of  articles  without  cooperation  is  incredible.  Every- 
body knows  the  rates  are  agreed  upon  by  the  various  traffic 
associations.  Yet  such  cooperation  and  agreements  are  just 
as  illegal  as  they  have  ever  been  in  the  past.  The  parties 
to  them  under  the  law  are  subject  to  criminal  and  civil 
prosecution;  yet  nobody  prosecutes;  nobody  complains. 
Why  is  this  so  ?  Because  the  public  through  its  commissions 
is  able  to  secure  fair  rates.  So  far  as  interstate  commerce  is 
concerned,  the  price  is  fixed  by  the  railroad  and  controlled 
by  the  Interstate  Commerce  Commission.  Within  many  of 
the  states,  the  prices  are  fixed  by  the  corporations,  but  may 
be  modified  by  the  commissions. 

In  cities  the  street  car  lines,  gas  companies,  and  electric 
companies,  each  have  monopoly  in  a  given  city,  or  the  two 
or  more  agree  upon  identical  rates.  Competition  has  ceased 
to  control  prices.  Where  prices  are  controlled  it  is  through 
a  public  utilities  commission. 


FACTS   REGARDING   CONCENTRATION        79 

Just  as  there  has  been  a  complete  collapse  in  competition 
in  prices  for  railroad  transportation  and  city  utilities,  so  there 
has  been  complete  collapse  in  charges  for  communication. 
The  post  office  is  a  public  monopoly;  the  rates  are  fixed. 
The  telegraph  business  of  the  country  has  become  consoli- 
dated into  two  great  corporations  the  prices  of  which  are 
identical.  The  telephone  business  is  now  mainly  under  the 
control  of  a  single  corporation.  The  foregoing  facts  show 
that  the  only  present  effect  of  the  theory  that  competition 
gives  adequate  control  of  prices,  so  far  as  the  railroads 
and  other  pubHc  utilities  are  concerned,  is  to  bring  the  law 
into  contempt. 

Closely  alUed  to  the  natural  monopolies   are  the  great 
companies  which  for  each  industry  are  controlled  by  a  single 
organization    or    by    a    number    of    organizations    working 
together  under  open  or  secret  agreements  or  understandings 
and  not  competing  in  price.     Here  are  included  anthracite,   Trusts  do 
steel,  oil,  beef,  whisky,  sugar,  and  other  great   industries,   pgte^^" 
When  prices  are  maintained  at  the  same  level  for  steel  rails  price, 
for  a  decade  during  times  of  panic  and  great  expansion  alike, 
it  is  certain  that  competition  has  ceased  to  control  adequately 
prices  for  iron  products.     The  same  applies  to  anthracite, 
oil,   and  many  other  commodities. 

For  some  articles,  the  producers,  instead  of  uniting  their 
concerns  and  informally  agreeing  on  prices,  have  united  in  a 
selHng  agency  and  in  this  way  succeed  in  holding  up  the 
prices  and  maintaining  a  like  price  for  each  producer.  Thus 
the  Michigan  Salt  Association,  as  first  organized  (see  pp.  101, 
103),  was  a  seUing  agency.  One  of  the  largest  of  the  selling  Selling 
agencies  is  the  United  Metals  Selling  Company.  It  markets  agencies, 
upward  of  500,000,000  pounds  of  copper  annually.  It  is 
the  sales  agent  for  the  Amalgamated  Copper  Company  and 
affiliated  corporations.  The  commission  charged  the  Amal- 
gamated was  1|  per  cent  before  1906,  but  now  is  1  per  cent. 
The  company  has  been  highly  successful,  having  paid  divi- 
dends upon  its  capital  stock  of  S5,000,000  of  from  20  to  30 
per  cent  since  1904,  with  one  extra  50  per  cent  dividend 
in  1909. 


80 


CONCENTRATION  AND  CONTROL 


Selling 
agencies 
among 
farmers. 


Bad  and 
good  selling 
agencies. 


At  one  time  there  was  a  producers'  association  for  oil,  the 
association  selhng  only  through  its  regularly  appointed 
agencies,  and  only  to  the  refiners'  association  and  its  members.^ 
In  a  like  manner  the  manufacturers  of  wall  paper  organized 
a  selling  company  to  handle  their  entire  output,  selling  only 
to  such  persons  as  entered  into  a  prescribed  agreement ;  but 
this  organization  got  into  court,  was  declared  to  be  illegal, 
and  was  therefore  dissolved.^ 

Selling  agencies  in  the  industries  have  existed  in  a  number 
of  lines,  but  there  is  a  tendency  at  the  present  time  for  them 
to  disappear  so  far  as  manufacturers  are  concerned,  since  it 
is  recognized  that  they  are  violations  of  the  laws,  national 
and  state. 

While  the  selling  agency  is  disappearing  among  the  manu- 
facturers, cooperative  selling  agencies  are  arising  among  the 
farmers.  These  are  illustrated  by  the  fruit  growers'  ex- 
changes of  the  West  in  Washington,  Oregon,  and  California, 
by  the  nut  growers'  associations  of  the  South ;  indeed  at  the 
present  time  all  over  the  country  there  is  a  strong  movement 
for  cooperation  of  the  farmers  not  only  to  buy  through 
cooperative  associations,  but  to  form  selling  associations  for 
marketing  their  products  (see  pp.  66-68). 

The  selling  agencies  of  the  manufacturers  which  have  held 
up  prices  have  been  denounced.  The  proposals  to  create  sell- 
ing agencies  for  the  farmers'  products  have  been  generally 
commended.  It  is  difficult  to  see  wherein  the  principle 
differs  in  one  case  from  that  in  the  other.  If  it  is  not  legal 
for  the  copper  producers  or  wall  paper  manufacturers  to  have 
joint  selling  agencies,  it  is  difficult  to  see  how  the  fruit  pro- 
ducers can  legally  have  such  an  agency. 

To  a  large  extent  competition  has  ceased  adequately  to 
control  the  prices  for  many  articles  not  in  great  combinations, 
and  this  is  true  both  in  the  wholesale  and  retail  businesses. 
The  various  associations  of  business  men  have,  as  one  of 
their  chief  purposes,  the  maintenance  of  prices.  Many 
articles  which  are  protected  by  patents  or  trade  marks  are 


1  Tarbell's  "History  of  Standard  Oil  Company,"  Vol.  I,  p.  341. 

2  Continental  WaU  Paper  Company  v.  Louis  Voigt  &  Sons,  212  U.  S.  227. 


FACTS  REGARDING   CONCENTRATION        81 

sold  to  the  dealers  only  on  condition  that  the  prices  fixed  by  How  price 
the  manufacturer  shall  be  maintained.  The  manufacturer  are*m™hi^*° 
of  a  definite  automobile  apportions  the  country  into  districts  tained. 
and  requires  of  the  dealers  in  each  of  the  districts  that  the 
prices  fixed  by  the  manufacturer  shall  be  charged.  The 
same  thing  is  true  of  hundreds  of  articles,  from  sewing  ma- 
chines to  talking  machines,  and  so  on  down  to  an  atomizer. 
In  this  class  of  trade  there  is  competition  to  a  certain  extent 
between  the  different  manufacturers;  there  is  no  competi- 
tion between  the  tradesmen  selling  the  same  articles.  Fre- 
quently the  prices  for  a  definite  line  of  goods  are  held  up  by 
agreement  or  understanding  among  the  different  manu- 
facturers producing  the  same  line  of  goods,  they  agreeing 
among  themselves  regarding  the  prices  which  shall  be  charged 
by  the  retailer;  and  in  many  cases  the  different  manufac- 
turers are  in  a  definite  combination. 

While   the   courts  would  not  enforce    any    penalties   for 
a  violation  of  these  agreements,  the  manufacturer  or  jobber 
usually    has   sufficient   power   through   refusal    to   sell    the  Penalties 
article  to  prevent  the  agreement  from  being  broken.     Thus  ^^^^  q°/^' 
the  saloon  keeper  who  would  sell  a  glass  of  beer  for  less  than  price  agree- 
five  cents,  or  who  would  use  a  glass  holding  more  than  the  ^<^^^^- 
agreed  maximum  amount,   could  no  longer  purchase    beer 
from  the  brewers.     Through  this  method  of  control  compe- 
tition in  price  has  broken  down   completely   among  retail 
dealers  for  many  articles. 

But  this  does  not  indicate  anything  like  the  extent  to 
which  competition  in  price  has  disappeared.     The  retailers  Local 
in  a  given  city  or  community  have  an  association   either  ^^^g^^^ 
formal  or  informal,  and  there  is  among  the  members  a  definite  prices, 
understanding  that  prices  shall  be  maintained.     It  makes 
no  difference  from  what  dealer  one  buys  anthracite,  or  sugar, 
or  bacon,   or  flour,  or  any  other  standard  article,   in  the 
majority  of  the  small  towns  and  cities  of  the  country;   the 
price  asked  by  each  is  the  same,  with  possible  slight  varia- 
tions in  some  cases.     It  may  be  that  for  a  time  a  retailer 
will  cut  the  price  on  some  standard  article  in  order  to  increase 
his  trade,  in  which  case  there  is  likely  to  be  a  cut  by  some 
a 


82 


CONCENTRATION   AND  CONTROL 


other  retailer  on  another  standard  Hne  in  order  to  equaUze 
this  advantage.  But  soon  they  get  together  and  the  prices 
are  again  the  same. 

For  some  concerns  which  have  a  large  part  of  the  business 
of  a  towTi,  either  through  a  single  retail  shop  or  a  number 
of  them,  an  additional  shop  may  be  there  established  by  this 
firm  under  another  name,  apparently  in  complete  independ- 
ence, in  order  that  there  may  be  an  appearance  of  competi- 
tion. From  time  to  time  if  there  be  danger  of  outside  parties 
entering  the  field,  the  stool  pigeon  establishment  may  reduce 
prices  under  the  direction  of  the  controlling  organization. 

The  extent  to  which  there  is  combination  among  the 
retailers  has  led  Professor  Laughlin,  of  the  University  of 
Chicago,  before  the  Senate  Interstate  Commerce  Committee, 
to  testify  that  competition  among  retailers  has  completely 
broken  down.  Says  he:  "We  do  not  have  competition; 
it  does  not  exist.  To-day  there  is  really  no  competition 
between  the  retail  men  who  sell  meat  or  groceries  to  different 
classes  of  people."  ^ 

While  the  statement  is  substantially  true  for  most  com- 
munities, it  does  not  fully  express  the  facts  for  all  of  them. 
There  still  exists  competition  in  prices  between  the  small 
shops  and  the  great  mail  order  houses.  Indeed,  this  compe- 
tition is  so  severe  that  it  is  feared  by  the  ordinary  retailers, 
who  oppose  vigorously  a  parcels  post  because  they  beUeve 
that  this  would  make  the  mail  order  houses  even  more 
formidable  competitors.  Also  there  is  competition  between 
the  small  retailers  and  the  great  department  stores ;  and 
since  the  latter  have  begun  to  introduce  branch  houses  in 
this  country  as  has  been  done  extensively  in  England,  the 
competition  is  likely  to  become  more  serious.  Further,  there 
is  competition  between  the  regular  retailers  and  the  coopera- 
tive stores ;  but  in  this  country  the  latter  are  relatively  few 
in  number,  although  numerous  in  England. 

A  statement  nearer  the  truth  about  the  retail  trade 
would  be  that  competition  in  price  for  standard  articles  has 
ceased  to  exist  between  shops  of  the  same  class  in  the  same 

'  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XIV,  p.  1005. 


FACTS  REGARDING  CONCENTRATION        83 

community.  The  regular  retailer's  prices  for  a  town  are  the 
same ;  the  prices  for  the  department  stores  are  the  same  ; 
the  prices  of  the  mail  order  houses  are  the  same. 

In  short  the  retail  trade  is  the  one  in  which  concentration  Declining 
has  not  sained  dominance ;  and  we  are  in  a  transition  stage  '^^ence 

*=  '  °      of  com- 

between  the  old  and  new  order  of  things.  One  who  has  petition  in 
watched  the  rise  of  the  great  department  store  in  this  country  t^y^tail 
and  England  and  who  now  sees  their  expanding  branches, 
one  who  has  seen  the  rise  of  the  great  mail  order  house  within 
the  last  score  of  years,  need  have  little  prophetic  sense  to 
realize  that  concentration  is  to  rule  in  the  retail  trade,  the  same 
as  it  has  in  manufacture.  The  retail  trade  as  pointed  out 
by  Macrosty,  is  the  "last  stronghold  of  competition."^ 

But  even  in  that  business  competition  has  largely  broken 
down,  and  presently  there,  as  elsewhere,  cooperation  will 
become  general.  The  small  retailer  can  only  hold  his  place 
to  the  extent  that  he  best  performs  a  service  to  the  com- 
munity. 

General  Statements.  —  As  to  the  extent  of  combinations 
and  agreements  in  the  industries,  Mr.  Samuel  Untermeyer, 
'  who  certainly  ought  to  know  the  facts,  said  before  the  Sen- 
ate Interstate  Commerce  Committee :  ''I  have  known  of 
hundreds  of  them  being  dissolved  where  they  were  under 
written  agreements.  There  are  safes  in  New  York  stuffed 
with  the  written  evidences  of  these  conspiracies  with  big  Agree- 
men's  signatures  to  them.  Those  are  gone,  but  in  their  ^*^°^^^^^ 
places  you  have  associations  for  the  betterment  of  trade, 
etc. ;  there  are  any  number  of  dinner  and  luncheon  clubs  and 
reunions  and  general  understandings,  winks,  and  telephone 
messages,  that  are  far  more  diflficult  to  get  at."  ^ 

If  any  one  doubts  the  above  statement  regarding  the  extent 
to  which  there  is  cooperation  in  prices  in  all  parts  of  the 
United  States  and  in  all  lines  of  business,  it  is  suggested 
that  such  doubter  talk  with  the  business  men  of  the  country, 
from  the  retailer  to  the  great  manufacturer.  This  the 
author  has  done  with  many,  and  in  no  instance  has  he  found 

1  "The  Trust  Movement  in  British  Industry,"  H.  W.  Macrosty,  p.  244. 
'  Hearings,  Senate  Interstate  Commerce  Committee,  Part  V,  p.  214. 


84 


CONCENTRATION   AND  CONTROL 


a  man  who  does  not  say  that  in  his  business  cooperation  exists 
everywhere  and  that  competition  does  not  control  in  prices ; 
that  they  are  matters  of  agreement,  formal  and  informal ; 
that  prices  are  fixed  at  what  seems  to  the  organization  as  a 
fair  amomit,  or  to  such  a  level  as  can  be  maintained  without 
encouraging  additional  competition. 

In  making  the  statement  that  prices  of  many  articles, 
from  the  great  natural  monopolies  to  matches,  are  controlled 
by  some  form  of  combination  or  agreement,  is  is  not  meant 
to  imply  that  any  price  can  be  charged  for  an  article.  There 
is  a  limit  beyond  which,  if  the  price  be  raised,  competitors 
will  enter  a  business.  This  so-called  potential  competition 
makes  the  combinations  careful  not  to  place  the  prices  at  so 
high  a  level  as  to  lead  to  additional  competition.  Although 
this  is  the  situation,  if  the  combination  be  a  powerful  one,  it 
may  go  far ;  for  the  man  thinking  of  entering  the  field  knows 
that  if  he  attempts  this,  the  price  of  the  product  may  be  de- 
pressed by  the  great  organization,  and  he  fears  to  enter  the 
enterprise.  In  the  earlier  stages  of  combination  in  this 
country  the  danger  mark  was  frequently  overshot;  and 
competitors  appeared,  sometimes  to  the  detriment  of  the 
organizations,  but  more  often  with  disaster  to  themselves. 
By  practice  the  great  combinations  have  become  skillful  in 
exacting  as  much  as  possible  without  danger  to  themselves. 

Beyond  the  amount  which  is  a  fair  profit  there  is  a  limit 
to  the  excess  which  can  be  taken  year  after  year  without 
bringing  in  competitors;  but  the  total  excess  may  be  vast 
in  amount.  Sufficient  evidence  of  this  is  furnished  by  the 
great  corporations  which  are  especially  considered.  (See 
pp.  104-154.)  The  United  States  Steel  Corporation,  in 
addition  to  paying  interest  on  its  bonds  and  ample  dividends 
on  all  of  the  real  valuation  of  the  stock,  has  been  able  to  put 
back  into  the  business  in  a  decade  more  than  five  hundred 
million  dollars.  This  was  accomplished  in  ten  years  by  this 
corporation  cooperating  with  the  other  corporations  in  the  iron 
business,  through  holding  the  prices  as  high  as  the  domestic 
trade  would  bear,  but  always  sufficiently  low  so  that  a  pro- 
tective tariff  prevented  competing  iron  from  coming  into  this 


FACTS   REGARDING   CONCENTRATION        85 

country  from  abroad.  At  the  prices  fixed,  as  large  sales 
were  made  as  possible  in  the  United  States  and  the  excess  was 
sold  abroad  at  a  lower  rate.  Precisely  the  same  situation 
has  obtained  for  the  Standard  Oil  Company.  The  enormous 
profits  of  the  past  decade,  far  beyond  reasonable  amounts 
(see  pp.  108-109),  have  been  accomplished  by  an  excess 
margin  of  somewhat  more  than  two  cents  a  gallon.  This 
seems  small ;  it  may  be  so,  —  perhaps  not  more  than  twenty- 
five  cents  each  for  every  man,  woman,  and  child,  in  the  United 
States,  —  but  even  on  this  basis  the  excess  would  be  more 
than  twenty  million  dollars  per  annum. 

The  same  principles  apply  all  along  the  line  down  to  the 
local  grocers.  The  advantages  of  prompt  and  convenient 
delivery  enable  the  retail  dealers  of  a  town  or  city  to  cooperate 
in  maintaining  their  prices  above  a  normal  profit  by  a  defi- 
nite margin.  The  limit  to  this  margin  is  that  it  cannot  be 
made  so  large  as  to  make  it  advantageous  for  the  consumer 
to  purchase  in  a  large  city  or  in  a  neighboring  town ;  although 
it  may  approach  so  close  to  this  that  some  of  the  more  care- 
ful and  astute  do  make  outside  purchases. 

The  margin  of  profits  which  may  be  gained  beyond  a  fair 
price  is  known  as  monopoly  price.  The  law  of  monopoly 
price  has  been  carefully  analyzed  by  Ely.  He  says  :  "The 
greater  the  intensity  of  customary  use,  the  higher  the  general 
average  of  economic  well-being,  and  the  more  readily  wealth 
is  generally  expended,  the  higher  the  monoply  charge  which  The  law  of 
will  yield  the  largest  net  returns."  ^  If  the  price  be  raised  price'l^"  ^ 
too  high,  sales  will  diminish  and  therefore  returns  be  lowered. 
It  is  the  aim  to  hold  the  prices  suSiciently  high  to  give  the 
largest  possible  return  with  the  least  expansion  of  business. 
In  this  connection  it  should  be  understood  that  the  principle 
of  monopoly  price  applies  where  monopoly  does  not  fully 
exist ;  that  it  applies  in  greater  or  less  degree  as  long  as  there 
is  any  cooperation  of  a  group  engaged  in  a  given  trade. 

As  illustrating  the  principle  that  if  a  local  combination 
goes  beyond  the  monopoly  price,  outside  competitors  will 
come  in,  is  the  case  of  ice  at  Madison,  Wisconsin.     Madison 

»  "Monopolies  and  Trusts,"  R.  T.  Ely,  p.  103. 


86 


CONCENTRATION    AND  CONTROL 


is  situated  between  two  lakes  upon  which  ice  forms  each 
winter ;  ice  houses  are  located  along  the  lakes ;  and  thus  the 
ice  dealers  should  be  able  to  furnish  this  product  at  a  low 
rate.  For  a  moderate  sized  house  until  two  or  three  years 
ago  the  price  of  ice  furnished  for  family  use  was  at  the  rate 
of  $1.50  for  five  hundred  pounds,  or  $18  per  annum.  The 
price  was  raised  to  a  flat  rate  of  $2  a  month  in  1909,  which 
price  was  so  high  that  the  Knickerbocker  Ice  Company 
entered  the  field  in  1910.  This  company  fixed  the  price  at 
$1  for  five  hundred  pounds,  and  the  local  companies  met  the 
cut.  But  later,  when  the  business  of  the  new  company  was 
established,  they  and  the  local  companies  got  together  and 
raised  the  rate  to  $1.50  per  five  hundred  pounds. 

Just  as  with  public  utilities,  manufacture,  and  trade,  com- 
petition has  broken  down  as  an  adequate  regulator  of  price, 
so  in  great  measure  competition  has  broken  down  in  the 
price  of  labor  and  service.  Thus  the  physicians  of  a  given 
town  usually  charge  exactly  the  same  rate  for  the  same  kind 
of  a  service.  Not  to  do  so  is  regarded  by  the  physicians  as 
contrary  to  good  medical  ethics.  The  same  practice  obtains 
in  other  professions.  And  yet  so  far  as  the  principle  is  con- 
cerned, an  understanding  by  which  a  common  price  is  charged 
for  a  like  service  is  just  as  unlawful  in  proportion  to  the 
importance  of  the  matter  as  any  other  combination  in  which 
there  are  price  agreements. 

Not  only  do  professional  men  agree  about  prices,  but  also 
those  who  perform  services  of  an  entirely  different  character. 
The  most  fundamental  purpose  of  the  trades-union  and  all 
combinations  of  labor  is  to  do  combined  bargaining,  the  chief 
point  being  the  price.  A  union  scale  of  prices  is  fixed  by 
which  all  members  of  the  union  must  abide.  Not  only  do  the 
regulations  of  the  labor  unions  prescribe  the  price  which  is  to 
be  charged  by  the  laborer,  but  the  methods  under  which  he  is 
to  work.  In  many  instances  in  which  the  price  is  fixed  regard- 
ing the  day's  wage,  the  laborer  must  not  do  more  than  a  pre- 
scribed amount  of  work.  The  idea  of  individual  bargaining 
by  the  laborers  in  the  industries,  and  their  competition  among 
themselves  as  proper  regulators  of  prices,  has  broken  down 


FACTS  REGARDING   CONCENTRATION        87 

absolutely;  and  necessarily  so,  because  the  laborer  as  an 
individual  was  simply  helpless  against  the  great  concentra- 
tions of  capital.  The  only  way  that  the  laborers  can  be  put 
on  anything  like  an  equal  footing  with  capital  in  industry  is 
to  unite  and  so  give  themselves  the  strength  of  concentra- 
tion, and  thus  do  joint  bargaining.  From  time  to  time  the 
representatives  of  labor  unions  for  coal,  for  railways,  for  the 
building  industries,  meet  with  the  employers  of  labor,  and 
agree  with  them  upon  a  scale  of  prices  which  are  to  be  charged 
for  a  given  period  of  time.  In  this  way  competition  in 
the  price  of  labor  between  individuals  is  destroyed ;  not  only 
so,  but  the  fluctuation  in  price  is  wholly  eliminated  for  a 
definite  period. 

The  foregoing  description  of  the  situation  cannot  but  con- 
vince any  man  who  will  look  the  facts  in  the  face  that  the 
blind  faith  that  prices  are  adequately  controlled  by  compe- 
tition in  the  United  States  is  no  longer  justified,  if  indeed  it 
ever  was  justified.     Unrestrained  competition  does  not  as  a 
matter  of  fact  exist  for  many  articles,  except  to  a  very  limited  Blind  faith 
degree  at  the  present  time.     Everywhere  there  is  restraint  ^^..'^^^p^' 
of  trade  by  agreement  or  combination,  either  la^N'ful  or  un-  justified. 
lawful.     So  inevitable  is  this  situation  that  we  have  seen 
how  the  law  forbidding  restraint  of  trade  has  accelerated 
concentration  of  industry  from  the  loose  agreement  to  the 
pool,  from  the  pool  to  the  trust,  from  the  trust  to  the  holding 
company,  and  from  the  holding  company  to  the  giant  com- 
pletely consolidated  industry. 

In  making  the  foregoing  statements,  it  is  not  meant  to 
imply  that  competition  has  not  been  a  most  useful  economic 
force  in  the  past,  nor  that  it  will  not  continue  to  be  a  useful 
force.  Competition  has  been  powerful  in  stimulating  men 
to  effort ;  it,  under  some  conditions  for  some  industries,  has 
been  potent  in  improving  quality;  it  has  limited  margins  Usefulness 
within  monopoly  prices,  and  has  often  been  helpful  in  a  \\ider  °^  S°™" 
sphere;  it  has  been  dominant  in  improving  service.  From 
the  smallest  firm  to  the  greatest  corporation  there  has  been 
an  increase  rather  than  a  decrease  in  the  power  of  competi- 
tion in  improvement  of  service.     Even  if  competition  were 


88 


CONCENTRATION  AND  CONTROL 


wholly  destroyed  as  to  quality  and  as  to  price,  competition 
in  service  would  still  remain  of  the  keenest. 

While  therefore  agreeing  that  competition  has  been  a  great 
and  highly  useful  economic  force,  it  has  been  the  purpose 
of  the  foregoing  pages  to  show  its  severe  limitations;  to 
show  that  it  is  not  adequate  alone  to  control  quality  or  price, 
and  that  where  relied  upon  for  these  purposes,  it  has  been  a 
lamentable  failure.  For  these,  competition  must  be  supple- 
mented by  regulation  in  order  to  give  satisfactory  results. 
In  another  place  it  is  proposed  that  we  shall  retain  the  ad- 
vantages of  competition  and  also  secure  the  advantages  of 
regulation.     (See  pp.  249-252.) 

Section  9 


THE  WASTES   OF  COMPETITION 

On  previous  pages  the  economic  advantages  of  concentra- 
tion have  been  given.  The  obverse  of  these  are  the  wastes 
of  competition.  The  economic  gains  through  concentra- 
tion are  possible  savings,  which,  if  not  taken  advantage  of,  are 
at  least  losses  in  the  sense  that  better  things  could  be  done 
even  if  they  are  not  technically  wastes.  Therefore,  in  one 
sense  all  of  the  advantages  of  concentration  should  be  here 
listed  as  gains  not  securable  through  competition.  The 
various  points  discussed  (pp.  8-20)  will  not  here  be  repeated, 
but  a  brief  statement  will  be  made  of  some  of  the  evils  of 
competition  which  can  manifestly  be  called  wastes. 

(1)  Expenses  of  Salesmen.  —  One  of  the  largest  of  the  wastes 
is  the  unnecessary  expenditures  for  salesmen  under  the  com- 
petitive system.  Where  there  is  competition,  the  sales 
agents  everywhere  overlap  one  another  in  their  work. 
In  a  small  town  or  village  there  may  be  a  half-dozen  men 
selling  the  same  kind  of  article  within  a  week;  whereas,  if 
cooperation  existed,  many  different  brands  could  be  exhib- 
ited by  a  single  salesman  and  the  expense  greatly  reduced. 

A  number  of  illustrations  of  such  losses  have  already  been 
given.     (See  p.  14.)     Many  more  might  be  included;   but 


FACTS   REGARDING   CONCENTRATION        89 

one  of  the  best  is  the  enormous  loading  in  the  life  insurance 
business,  which  has  resulted  from  the  competitive  system 
due  to  the  expense  of  salesmen  selling  life  insurance,  usually 
men  receiving  high  pay  and  high  commissions.  Indeed,  for 
many  companies  a  large  percentage  of  the  conduct  of  the 
business  and  a  considerable  percentage  of  the  income  has 
gone  to  compensate  salesmen  of  insurance. 

(2)  The  Expense  of  Advertising. — The  money  spent  for  ad- 
vertising is  enormous.  This  varies  from  the  frantic  efforts 
to  push  patent  medicines,  through  many  specialties,  such 
as  automobiles,  to  staple  articles,  such  as  soap,  clothing,  and 
foodstuffs.  It  is  a  well-known  fact  that  the  great  daily 
newspapers  would  be  losing  enterprises,  as  conducted,  if  it 
were  not  for  the  advertising;  indeed  their  major  profits  come 
from  this  class  of  business.  The  same  is  true  of  the  weekly 
and  monthly  magazines,  many  of  which  give  more  space  to 
advertising  than  to  reading  matter.  If  one  looks  through 
the  magazines  and  makes  an  estimate  of  the  amount  of 
money  which  is  spent  in  the  advertising  of  such  an  article 
as  soap  for  a  single  month,  he  will  find  that  this  reaches  tens 
of  thousands  of  dollars.  The  enormous  cost  of  advertising 
will  scarcely  be  appreciated  without  knowing  the  cost  per 
page  and  the  number  of  pages  carried  per  month  for  the 
different  magazines.  The  cost  of  advertising  per  page  for 
each  issue  of  some  of  the  standard  magazines  is  as  follows  : 

Ladies^  Home  Journal,  $6000;  Saturday  Evening  Post, 
$4000 ;  and  such  magazines  as  the  Century,  American,  Har- 
per's, McClure's,  Munsey's,  Cosmopolitan,  Everybody's,  from 
$250  to  $600,  depending  upon  the  circulation.^  Exceptional 
positions,  such  as  the  back  covers  and  the  pages  next  the 
covers  have  special  rates  greater  than  the  above.  The 
average  number  of  pages  of  advertising  for  the  Ladies' 
Home  Journal  is  about  35,  and  the  Saturday  Evening  Post  is 
about  25.  This  makes  the  advertising  cost  for  a  single  issue 
for  these  publications  $210,000  and  $100,000  respectively. 

(3)  Competition  and  Conservation.  —  The  heaviest  of  the 
wastes  of  competition  with  reference  to  the  future  of  the  race 

'  Mahin  Advertising  Company  Data  Book,  1912. 


90 


CONCENTRATION   AND  CONTROL 


are  those  due  to  the  unnecessary  destruction  of  natural  re- 
sources in  order  to  put  an  article  on  the  market  at  a  competi- 
tive price. 

Of  the  wastes  of  natural  resources  through  competition 
probably  those  of  fuels  and  gas  are  the  worst.  Holmes  says, 
regarding  coal :  — 

''Those  who  are  less  familiar  with  the  mining  industry 
than  you  are  with  the  metallurgy  may  not  be  aware  of  the 
fact  that  for  every  ton  of  coal  brought  to  the  surface  in  the 
bituminous  or  soft  coal  mines  of  this  country,  not  less  than 
one  half  a  ton  is  left  under  the  ground,  and  it  will  not  be 
possible  to  bring  it  to  the  surface  in  the  future  at  any  reason- 
able cost,  if  at  all.  But  more  shocking  still  is  the  fact  that 
in  our  anthracite  coal  fields,  which  are  so  limited  in  extent 
as  to  be  confined  to  a  territory  comprising  less  than  four 
hundred  square  miles,  even  with  all  modern  improvements, 
not  more  than  50  per  cent  of  the  anthracite  coal  of  the  areas 
mined  is  being  brought  to  the  surface.  The  remainder  of  it, 
now  aggregating  80,000,000  tons  a  year,  is  being  left  under- 
ground in  such  condition  as  to  make  its  future  recovery 
difficult,  if  not  impossible. 

"In  the  early  days  of  anthracite  mining  there  was  brought 
to  the  surface  an  average  of  between  30  and  40  per  cent  of  the 
coal,  so  that  from  60  to  70  per  cent  remained  under  the  ground, 
which  was  sufficient  to  give  strength  to  the  roof;  and  to- 
day mining  engineers  are  bringing  to  the  surface  a  part  of 
the  coal  which  was  left  in  the  mines  30  or  40  years  ago.  But 
as  the  percentage  of  coal  mined  has  increased,  from  time  to 
time,  the  possibility  of  recovering  what  is  left  behind  dimin- 
ishes. It  has  been  estimated  that  since  the  beginning  of 
coal  mining  in  the  United  States,  more  than  2,000,000,000 
tons  of  anthracite  coal  and  3,000,000,000  tons  of  bituminous 
coal  have  been  left  underground  in  such  condition  as  to  make 
its  future  recovery  doubtful  or  impossible. 

"I  know  of  no  other  American  industry  which  to-day  is 
in  so  deplorable  an  economic  condition  as  is  the  bituminous 


^Journal  of  Industrial  and  Engineering  Chemistry,   "Carbon  Wastes," 
J.  A.  Holmes,  pp.  160-162. 


FACTS  REGARDING   CONCENTRATION        91 

coal  industry.  The  operators,  unable  under  existing  laws  to  Competi- 
eombine  and  fix  prices  of  coal  or  any  trade  agreements,  are  duces  ™' 
adopting  what  appears  to  be  the  only  alternative  —  ruinous  waste. 
competition,  which  encourages  or  enforces  wasteful  and  dan- 
gerous mining.  It  seems  essential  that  federal  or  joint  state 
legislation  be  enacted  authorizing  such  reorganization  of  this 
great  industry  as  will  permit  reasonable  returns  on  the  money 
invested  and  at  the  same  time  properly  safeguard  the  public 
interests.  You  realize  that  it  is  often  less  expensive  per  ton  for 
the  operator  to  bring  the  first  half  of  his  coal  to  the  surface 
than  it  is  for  him  to  bring  out  the  remaining  half,  because 
this  second  half  will  support  the  roof  while  the  first  half  is 
being  removed;  but  while  he  removes  the  second  half  he 
must  often  temporarily  support  the  roof  with  timbers ;  this 
entails  additional  expense,  to  meet  which  there  is  generally 
neither  an  accumulated  surplus  from  which  to  draw,  nor 
a  temporary  profit  from  which  to  meet  this  extra  expense; 
hence  the  coal  is  abandoned.  It  is  only  fair  to  the  coal 
operator  that  he  is  not  in  the  mining  business  for  his  health, 
but  to  make  a  living  by  earning  a  reasonable  return  on  his 
investment.  Therefore,  what  we  may  consider  a  waste  may 
be  a  necessary  waste  under  existing  economic  conditions ;  a 
waste,  however,  that  is  preventable  and  should  be  prevented 
by  improvements  in  our  economic  conditions,  and  necessary 
legislative  requirements." 

The  above  admirable  statement  by  Holmes  regarding  the 
inevitable  waste  of  coal  under  the  competitive  system  may 
be  made  more  concrete  by  illustrations. 

Mr.  Walter  S.  Bogle,  speaking  for  the  coal  operators  of 
the  state  of  Indiana,  says  that  the  proposed  formation  of  a 
selling  agency  by  a  number  of  small  operators  was  declared 
by  the  federal  officers  to  be  in  restraint  of  trade,  and  notice 
was  given  that  if  such  selling  agency  were  established,  those 
contemplating  its  formation  would  be  subject  to  criminal 
and  civil  prosecution.^  This  is  the  situation  even  if  the 
operators  contemplating  a  selling  agency  are  together  able 
to  put  no  more  coal  upon  the  market  than  a  single  large 

1  Hearings,  Interstate  Commerce  Committee,  XXVI,  pp.  2320-2327. 


92  CONCENTRATION   AND  CONTROL 

concern.  The  Indiana  coals  are  of  a  kind  that  deteriorate 
rapidly  when  taken  out  of  the  mine.  Several  varieties  and 
sizes  of  coal  are  produced;  to  obtain  one  size  other  sizes 
must  be  made.  If  an  order  comes  to  a  mine  for  a  certain 
size,  corresponding  orders  may  not  come  for  the  other  sizes ; 
but  such  orders  may  come  to  an  adjacent  mine.  If  a 
group  of  mines  may  cooperate  so  that  the  orders  will 
equalize  themselves  among  the  different  varieties  and  sizes 
of  coal,  it  is  evident  the  waste  will  be  greatly  reduced. 

Mr.  G.  W.  Traer/  speaking  for  the  IlUnois  Coal  Operators' 
Association,  says  in  that  state  there  are  about  three  hundred 
independent  coal  producing  companies ;  that  the  demand  for 
the  Illinois  coal  is  about  50,000,000  tons  a  year,  but  that 
the  capacity  of  the  mines  is  about  75,000,000  tons.  It  is 
necessary  to  have  a  greater  mining  capacity  than  the  average 
demand,  since  the  demand  in  the  winter  months  greatly 
exceeds  that  of  the  summer  months. 

The  Illinois  coal,  like  the  Indiana  coal,  deteriorates  if  un- 
used for  several  months.  Thus  if  the  mines  be  developed 
sufficiently  to  meet  the  demands  for  the  year,  they  must  lie 
idle  for  a  portion  of  the  time.  As  a  matter  of  fact  the 
average  running  period  of  the  mines  per  annum  is  about  one 
hundred  seventy  days.  If  the  mine  operators  do  not  agree 
among  themselves  regarding  limitation  of  output  during  the 
summer  months,  it  is  inevitable  that  there  will  be  overpro- 
duction, deterioration,  and  great  waste ;  yet  it  is  certain  that 
under  existing  laws  agreements  to  hmit  output  are  illegal. 

Mr.  J.  F.  Callbreath  ^  states  that  there  are  5000  operators 
of  bituminous  coal  in  the  United  States  which  have  the 
ability  without  opening  new  mines  to  produce  200,000,000 
tons  of  coal  per  annum  more  than  the  present  markets 
demand.  Under  existing  laws  no  group  of  these  operators 
may  cooperate.  He  states  that  three  fourths  of  the  mem- 
bers of  the  American  Mining  Congress  are  consumers  of 
coal,  not  producers,  and  they  urge  that  there  be  cooperation 
among  the  coal  mines  in  order  to  secure  regularity  of  out- 

>  Hearings,  Interstate  Commerce  Committee,  XXVI,  pp.  2353-2359. 
» Ibid.,  XXVI,  pp.  2372-2380. 


FACTS   REGARDING   CONCENTRATION        93 

put  and  uniform  prices.  According  to  him  an  investigation 
of  the  bituminous  coal  mining  industry  for  1910  shows  the 
following  situation:  The  average  cost  of  production  for  1910 
was  "  $1.07  per  ton,  95  cents  for  mine  labor  and  supplies 
and  12  cents  for  general  expenses.  It  shows  that  there  was 
invested  in  the  industry  $585,000,000.  The  average  price 
obtained  at  the  mine  during  1910  was  $1.11 — 4  cents  per 
ton  to  cover  selUng  costs,  depreciation  of  machinery,  ex- 
haustion of  resources,  and  interest  upon  capital  invested. 

"  The  sworn  testimony  of  the  Pittsburg  Coal  Co.,  before 
the  Interstate  Commerce  Committee  in  November,  1911, 
shows  that  in  the  previous  17  months  the  company  mined 
3,522,500  tons  of  coal  at  a  cost  of  $1.1148,  and  the  average 
selhng  price  for  that  period  was  $1.0930.  It  showed  further 
that  the  product  of  20  of  its  mines,  out  of  a  total  of  52, 
produced  5,350,594  tons  at  a  cost  of  $1.0788,  and  when  the 
money  actually  spent  in  selHng  this  coal  is  added  to  the 
given  cost  and  the  interest  on  bonds  of  the  company  it 
appears  that  the  cost  of  this  coal  was  actually  in  excess  of 
$1.15  per  ton  run  of  mine."  ^ 

Under  such  conditions  it  is  certain  that  the  mining  will 
not  be  carried  on  economically ;  that  only  the  coal  will  be 
taken  out  which  can  be  mined  cheaply,  and  the  remainder 
left  in  the  mine  to  be  crushed  by  the  gradually  sinking  roof. 
*'  To  avert  these  conditions  there  are  but  two  possible 
remedies.  One,  that  the  coal  shall  be  sold  at  a  greater 
average  price ;  the  other,  a  greater  economy  in  operation  by 
which  the  same  price  will  yield  a  profit.  Neither  of  these 
remedies  is  possible  under  the  system  of  cutthroat  competi- 
tion which  now  exists.  It  is  only  by  general  cooperation 
that  any  rehef  can  be  obtained  except  by  a  process  which 
would  eliminate  the  greater  number  of  those  now  in  the 
business."  ^ 

Nor  will  it  be  possible  under  these  conditions  to  intro- 
duce in  the  mines  those  devices  which  are  necessary  for 
the  preservation  of  life ;  and  plainly  it  will  be  impossible  to 

1  Hearings,  Interstate  Commerce  Committee,  XXVI,  pp.  2372-2373. 

2  Ibid.,  p.  2376. 


94 


CONCENTRATION  AND   CONTROL 


give  the  miners  wages  adequate  to  introduce  good  social 
conditions.  In  view  of  the  above  situation  the  operator 
asks  that  conditions  be  created  covering  the  following 
points :  — 

"  First.  Proper  protection  to  the  lives  and  health  of  the 
miners. 

"  Second.  Prevention  of  waste  and  proper  conservation  of 
fuel  resources. 

"  Third.  A  fair  profit  to  the  operator. 

"  Fourth.   A  fair  and  uniform  price  to  the  consumer."  * 

No  one  can  gainsay  the  desirability  of  creating  the  above 
conditions,  but  it  is  absolutely  certain  that  they  can  never 
be  established  except  through  cooperation,  and  cooperation 
of  a  kind  which  is  illegal  under  existing  laws. 

Regarding  gas,  Professor  Holmes  says  :  "  Our  waste  of  natu- 
ral gas  is  a  crime,  and  thoroughly  discreditable  to  the  nation. 
It  is  far  worse  than  the  waste  of  coal.  The  statistics  for 
1910,  according  to  the  Geological  Survey,  showed  that  some 
480,000,000,000  cubic  feet  of  gas  were  turned  into  the  at- 
mosphere and  forever  lost.  In  the  above  as  in  other  cases, 
the  individual  operator  finds  it  easier  to  save  a  part,  than  all, 
of  these  resources,  yes,  cheaper  for  him  to  waste  a  large  part 
of  these  resources  than  to  save  all.  In  the  case  of  natural 
gas  he  says :  'I  want  to  get  oil,  and  if  I  can  get  the  oil  cheaper 
by  letting  the  gas  escape,  that  is  the  operation  I  will  pursue.' 
And  the  state  and  the  nation  stand  by  and  watch  the  opera- 
tion. 

"There  are  many  other  examples  of  extensive  and  serious 
carbon  waste  in  this  country.  Thus,  in  the  coking  industry 
the  beehive  coke  ovens  have  turned  into  the  atmosphere  more 
than  100,000,000,000  cubic  feet  of  valuable  gas,  which,  if 
properly  treated,  will  yield  not  only  gas  but  other  important 
carbon  by-products." 

Statements   have  been  made  at  some  length    regarding 
fuel  and  gas  because  of  their  paramount  importance;  but 
for  some  of  the  metals  a  similar  situation  exists  and  must 
continue  to  exist  under  the  severely  competitive  system. 
^  Hearings,  Interstate  Commerce  Committee,  XXVI,  p.  2379. 


FACTS  REGARDING   CONCENTRATION        95 

This  is  illustrated  by  lead  and  zinc.  Putting  together  all  Waste  of 
the  losses  in  mining,  concentration,  and  smelting,  they  prob-  Jj^^ 
ably  amount  on  an  average  to  at  least  40  per  cent  of  the 
metal  of  the  ore,  and  in  some  instances  the  losses  run  as  high 
as  60  or  70  per  cent.  These  losses  are  in  large  measure  due  to 
the  extreme  competitive  system  under  which  excessive  royal- 
ties are  charged  to  the  operators.^ 

Untermeyer  ^  calls  attention  to  this  situation  for  copper.  Waste  of 
Methods  of  competition  involve  overproduction  for  this  copper, 
country  and  exportation  of  the  excess,  when  the  copper  ore 
in  sight  is  probably  not  sufficient  to  last  more  than  fifty  years. 
If  the  copper  producers  were  allowed  to  cooperate  in  the 
regulation  of  production,  rational  action  could  be  secured 
both  as  to  quantity  of  copper  wliich  is  to  be  mined  and  as 
to  methods  of  mining. 

Small  production  and  competition  in  all  mining  enter- 
prises lead  to  great  and  irreparable  wastes,  the  effects  of 
which  must  be  borne  by  succeeding  generations. 

Another  of  the  numerous  wastes  is  that  in  metallurgy.  Waste  of 
For  instance,  sulphur  is  being  burned  upon  a  great  scale,  ^  t>  ur. 
and  the  products  are  being  passed  into  the  atmosphere  to 
the  injury  or  destruction  of  surrounding  vegetation.  With 
reference  to  agriculture  this  loss  of  sulphur  is  likely  to  become 
irreparable,  since  sulphur  is  one  of  the  limiting  and  crucial 
elements  among  plant  foods.^ 

A  situation  obtains  for  timber  similar  to  that  which  applies 
to  the  metals  and  coal.  With  unrestricted  competition  the 
timber  is  cut  and  only  the  choicest  parts  of  the  logs  are  Waste  in 
marketed,  the  remainder  being  left  in  the  woods.  If  co-  *™ 
operation  were  possible,  it  would  be  practicable  to  have 
conservative  timber  cutting,  the  additional  expense  of  sav- 
ing the  wasted  material  slightly  adding  to  the  price.  Mr. 
D.  E.  Skinner  ^  illustrates  the  situation  regarding  timber  in 

1  "Conservation  of  Natural  Resources  in  the  United  States,"  C.  R.  Van 
Hise,  pp.  80-85. 

*  Hearings,  Senate  Interstate  Commerce  Committee,  Part  V,  p.  184. 

'  "Sulphur  Requirements  of  farm  crops  in  relation  to  the  Soil  and  Air  Supply," 
Research  Bulletin  14,  Agricultural  Experiment  Station,  University  of  Wis- 
consin. 

*  Hearings,  Interstate  Commerce  Committee,  XXII,  pp.  1909-1911. 


96 


CONCENTRATION  AND  CONTROL 


Conditions 
in  older 
countries. 


Respon- 
sibility to 
posterity. 


the  western  part  of  the  United  States.  Since  under  the 
Sherman  act  cooperation  is  not  possible  the  weaker  operators 
are  bound  to  make  sales,  and  they  will  at  such  prices  as 
they  can  get.  For  the  lower  parts  of  the  trees  the  average 
sale  price  is  $15  per  thousand  feet  board  measure,  and  for 
the  upper  part  $7  per  thousand  feet.  In  California  it  costs 
in  round  numbers  $5  a  thousand  feet  for  logging  and  $5  for 
milling.  Under  these  circumstances  it  naturally  follows  that 
the  tops  of  the  trees  and  the  small  down  timber  which  will 
not  produce  lumber  selling  at  about  $10  a  thousand,  are  left 
to  rot  in  the  forest;  and  this  leaves  on  the  ground  from 
twenty  to  thirty  per  cent  of  the  material  which  should  have 
been  taken  off.  The  only  possible  remedy  for  the  above 
situation  is  to  allow  cooperation  so  that  a  price  may  be 
secured  which  will  permit  the  utilization  of  the  upper  parts 
of  the  trees.  For  our  wild  orgy  of  competition  in  the  lumber 
industry  succeeding  generations  will  pay  heavily. 

In  making  the  above  statements,  it  is  realized  that  in  a  new 
country,  with  abundant  resources  and  a  relatively  sparse 
population,  we  cannot  expect  the  same  severe  economies 
that  are  practiced  in  the  older,  more  densely  settled  coun- 
tries. It  would  be  impossible  to  introduce  the  extreme 
economies  and  labor  costs  of  the  intensive  agriculture  of 
China  into  the  United  States  under  present  conditions. 
The  smaller  twigs  and  limbs  of  timber  cut  in  lumbering 
cannot  be  saved  in  this  country  as  yet.  Where  labor  is 
cheap,  savings  are  possible  which  cannot  be  practiced  in 
the  United  States.  While  this  is  the  situation,  upon  the 
other  hand,  reckless  extravagance  in  the  use  of  natural 
resources  is  not  warranted.  Under  present  conditions,  we 
can  and  should  introduce  all  practicable  economies  in  the 
use  of  our  natural  resources  along  every  line. 

Everywhere  the  necessity  to  meet  severe  competition, 
combined  with  the  desire  to  produce  large  profits,  results  in 
extravagant  and  wasteful  use  of  resources  limited  in  quan- 
tity. It  is  our  duty  to  our  descendants  to  conserve  our 
fundamental  resources,  to  use  them  economically,  to  prevent 
their  unnecessary  waste  or  destruction;    and  if  by  so  doing 


FACTS  REGARDING   CONCENTRATION        97 

a  ton  of  anthracite  or  iron  costs  us  a  few  cents  more,  we  should 
bear  this  additional  expense.  Under  unrestricted  compe- 
tition there  is  no  hope  for  economical  use  of  our  resources, 
no  hope  for  conservation. 

The  Consumer  pays  for  the  Wastes  of  Competition.  —  Ulti- 
mately all  the  losses  and  wastes  of  competition  come  back  to 
the  consumer  and  are  added  to  the  price  which  he  must  pay. 
If,  as  a  result  of  overbuilding,  concerns  fail  and  factories  are 
dismantled,  the  cost  finally  must  be  borne  by  the  com- 
munity. The  enormous  expense  of  traveling  salesmen  and 
advertising  is  paid  by  the  consumers  of  the  articles  sold. 
The  men  who  carry  life  insurance  support  the  numerous 
high-priced  agents.  Succeeding  generations  will  suffer  for 
our  reckless  exploitations  of  natural  resources. 

Says  Nettleton  :  "  The  waste  of  wealth  due  to  unrestrained 
competition  would,  if  saved,  go  far  to  enrich  the  community 
every  year.  And  this  waste  finally  falls  for  the  most  part  on 
the  general  body  of  consumers,  —  the  much  enduring  public."  ^ 

Wastes  of  Competition  drive  to  Combination.  —  Because  of 
the  situation  described,  not  only  has  restraint  of  trade 
existed  in  a  thousand  matters  in  contravention  to  the  Sherman 
act  and  the  various  state  antitrust  acts ;  but  it  will  con- 
tinue to  exist  either  lawfully  or  unlawfully,  because  of  the 
frightful  wastes  of  the  competitive  system.  If  where  fierce 
and  unrestricted  competition  exists,  this  goes  on  until  the 
weaker  competitors  are  driven  from  the  business  and  the 
others  are  on  the  verge  of  bankruptcy,  in  order  to  prevent 
the  destruction  of  the  group,  a  combination  or  cooperation  of 
the  remaining  companies  will  be  formed  either  secretly  or 
openly.  In  consequence  of  this  principle,  because  of  the  law 
against  restraint  of  trade  in  this  country,  innumerable  secret 
combinations  have  been  formed. 

In  Germany  and  England,  where  combination  is  free  as  well  combina- 
as  competition,  the  organizations  of  fair  size  have  cooperated  ^ion  per- 
through  one  of  the  looser  forms  of  organization,  and  have  thus  abroad, 
avoided  the  losses  of  fierce  competition ;   but  in  America  the 
loose  agreements  not  being  enforcible  in  the  courts,  in  order 
1  "  Trusts  or  Competition,"  A.  B.  Nettleton. 


98 


CONCENTRATION  AND  CONTROL 


Railroads 
violate  laws 
against 
restraint 
of  trade. 


Combina- 
tions on 
the  ocean. 


to  save  themselves  from  destruction,  the  competing  units  have 
been  obUged  to  combine  formally  in  a  manner  which  it  was 
supposed  the  courts  would  protect.  We  have  seen  that 
many  of  the  whisky  distilleries  of  the  country  had  gone  into 
bankruptcy  before  the  remainder  combined.  Similarly  it 
was  the  still  fiercer  competition  between  the  Federal  Steel 
and  the  Carnegie  Steel  and  other  steel  companies  that  led  to 
the  formation  of  the  United  States  Steel  Corporation. 

When  the  stage  of  competition  resulting  in  enormous  losses 
was  reached  between  the  great  railroads,  agreements  and  pools 
were  first  formed;  and  finally  a  way  was  found  to  exempt 
the  railroads  and  other  public  utilities  from  the  laws  for- 
bidding combination  in  restraint  of  trade  by  control  through 
commissions.  To  this  plan  the  public  gives  general  assent 
and  no  prosecutions  follow,  although  the  agreements  regarding 
prices  are  as  clearly  in  violation  of  the  law  as  were  those  of 
the  packers  or  those  of  the  Standard  Oil  Trust. 

A  like  situation  exists  between  the  Atlantic  liners.  With 
modern  conditions  we  have  seen  the  ships  grow  larger  and 
larger.  We  have  now  the  Lusitania  and  the  Mauretania 
of  the  Cunard  line  and  the  Olympic  of  the  White  Star  line. 
Occasionally  there  has  been  severe  competition  in  price 
between  these  lines  and  the  other  great  lines,  such  as  the 
North  German  Lloyd,  Hamburg-American,  etc. ;  but  at 
the  present  time  for  definite  seasons  of  the  year  there  are 
substantially  like  prices  for  similar  accommodations,  the  prices 
being  raised  and  lowered  for  the  same  accommodations  at 
different  seasons  of  the  year,  being  perhaps  twice  as  high  in 
the  summer  as  in  the  winter. 

The  illustrations  given  show  that  the  inevitable  conse- 
quence of  unrestricted  competition  is  bigness  and  finally 
monopoly.  Even  Brandeis,^  who  strongly  advocates  com- 
petition, says :  "  Unrestrained  competition  will  lead  neces- 
sarily to  monopoly."  Along  the  same  line,  Untermeyer^ 
says :  '*  The  logical  outcome  of  unrestrained  competition  is 
legaUzed   monopoly."     Laughlin   puts   the    case   that   with 


1  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XVI,  p.  1162. 
■^  Ibid.,  Part  V,  p.  183. 


FACTS  REGARDING  CONCENTRATION        99 

"  free  competition  you  must  inevitably  expect  to  have  big- 
ness and  also  monopoly."  ^ 

Ruin  or  Combination.  —  In  the  past,  the  disastrous  com- 
petition which  has  led  to  ruin  has  been  largely  confined  to 
the  small  concerns.  When  there  is  severe  competition  of 
many  small  manufacturers  or  sellers,  a  number  of  them 
with  relatively  small  capital  fail.  The  fact  that  from  10 
to  20  per  cent  of  them  go  to  the  wall  may  not  so  seriously 
affect  business  as  to  be  generally  noticed;  but  its  total 
effect  is  great,  and,  so  far  as  the  man  whose  business  is 
destroyed  is  concerned,  it  is  an  individual  disaster.  As  the 
many  drop  out,  the  competitors  become  fewer  and  the 
competition  becomes  ever  keener.  Finally  a  situation  arises 
where  this  can  no  longer  be  endured. 

Numerous  illustrative  cases  could  be  given  in  which  fierce 
and  unrestrained  competition  has  driven  business  men  to 
the  verge  of  distraction  or  to  complete  ruin.  I  select  one 
or  two  recentlj^  brought  before  the  United  States  Interstate 
Commerce  Committee. 

Vinson^  testified  that  in  West  Virginia  the  small  coal 
producers  cannot  compete  with  the  large  concern  because 
they  cannot  cooperate  through  a  selling  agency.  He  says 
that  if  the  small  concerns  are  not  allowed  to  cooperate  so  as 
to  have  the  advantage  of  the  large  concentration,  the  only 
alternative  is  bankruptcy.^  Untermeyer  reports  that  a 
dozen  of  the  paper  manufacturers  had  failed  because  they 
were  unable  to  compete  with  the  big  fellows ;  and  that  they 
had  made  a  temporary  trade  agreement  in  order  to  save 
themselves  from  destruction;  but  that  in  consequence  they 
were  indicted  and  fined  for  \iolation  of  the  antitrust 
law.  Says  Untermeyer:  *  "  Requiring  the  enforcement  of  un- 
restricted competition  calls  upon  people  either  to  make 
criminals  of  themselves  or  to  ruin  themselves  in  obeying  the 
law."     Says  Walker:^  "Competition  is  the  life  of  trade; 

1  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XIV,  p.  996. 
« Ibid.,  Part  III,  p.  30.  a  /5i<^._  part  V,  p.  194. 

*  Ibid.,  Part  V,  p.  183. 

*  "Unregulated  Competition  Self -destructive,"  Aldace  F.  Walker,  Forum, 
December,  1881. 


100 


CONCENTRATION   AND   CONTROL 


Alternative, 
lawlessness 
or  failure. 


competition  is  the  death  of  trade:  one  phrase  is  as  true  as 
the  other."  And  again :  "  Unrestrained  competition  as  an 
economic  principle  is  too  destructive  to  be  permitted  to 
exist." 

The  fierceness  of  modern  competition  is  the  inevitable 
result  of  the  development  of  transportation  and  communi- 
cation. Until  these  were  in  a  highly  advanced  condition  it 
was  not  possible  for  an  organization  to  reach  a  great  terri- 
tory with  its  products.  With  highly  efficient  transportation 
and  communication  the  strong  organizations,  even  if  far 
apart,  meet  one  another  in  the  wide  markets;  and  the 
destructive  struggle  is  inevitable  unless  they  cooperate. 

A  situation  similar  to  that  which  existed  with  the  railroads 
before  cooperation  in  charges  was  actually  agreed  upon  is 
now  reached  for  the  great  manufacturing  industries.  They 
have  found  a  way  by  consolidation  to  prevent  the  evil 
effects  of  unrestricted  competition.  It  is  now  proposed 
through  the  courts  to  break  up  these  combinations  and 
restore  competition.  If  this  be  done,  it  is  safe  to  say  that 
even  greater  disasters  will  befall  the  country  for  the  great 
industries  than  those  which  the  country  suffered  when  the 
same  situation  existed  with  the  railroads. 

With  the  alternative  before  the  business  men  of  coopera- 
tion or  failure,  we  may  be  sure  that  they  will  cooperate. 
Since  the  law  is  violated  by  practically  every  group  of  men 
engaged  in  trade  from  one  end  of  the  country  to  the  other, 
they  do  not  feel  that  in  combining  they  are  doing  a  moral 
wrong.  The  selection  of  the  individual  or  corporation  for 
prosecution  depends  upon  the  arbitrary  choice  of  the  Attorney- 
General,  perhaps  somewhat  influenced  by  the  odium  which 
attaches  to  some  of  the  violators  of  the  law.  They  all  take 
their  chance,  hoping  that  the  blow  will  fall  elsewhere.  With 
general  violation  and  sporadic  enforcement  of  an  imprac- 
ticable law,  we  cannot  hope  that  our  people  will  gain  respect 
for  it. 


CHAPTER    II 

SOME    IMPORTANT    ILLUSTRATIONS    OF 
CONCENTRATION 

Now  that  a  general  statement  has  been  made  of  the 
economic  advantages  of  concentration,  its  extent,  the  wastes 
of  competition,  its  consequent  break-down,  etc.,  it  seems 
advisable  as  the  next  step  to  make  the  situation  more  con- 
crete by  giving  an  outline  statement  concerning  some  of 
the  greatest  combinations,  including  the  benefits  and  evils 
which  have  appeared  in  connection  with  them. 

With  two  exceptions,  the  illustrative  industries  selected 
for  description  are  those  upon  which  reports  have  been  made 
by  the  United  States  Commissioner  of  Corporations.  The 
earUest  of  these  reports,  viz.,  that  upon  beef,  was  made  when 
James  R.  Garfield  was  Commissioner.  The  other  reports 
were  issued  during  the  time  that  Herbert  Knox  Smith  has 
held  that  oflSce.  The  corporations  reported  upon  by  the 
Commissioner  are  those  of  the  first  magnitude,  and  the  facts 
concerning  them  are  presented  with  a  fullness  not  available 
for  the  corporations  not  investigated  by  this  bureau.^ 

Section  1 

THE  MICHIGAN   SALT   COMPANY  2 

Beginning  with  1860,  there  was  a  rapid  development  of 
salt  production  in  Michigan.  About  1865  came  overpro- 
duction and  unrestricted  competition ;  the  weaker  companies 
were  driven  to  the  wall.  It  was  recognized  that  the  solution 
of  the  difficulty  was  combination.     By  1866  the  manufac- 

*  The  great  combinations  as  they  existed  twelve  years  ago  are  described  in 
the  Report  of  the  Industrial  Commission,  Vols.  I  and  XIII. 

'Summarized  from  an  article  by  J.  W.  Jenks,  contained  in  "Trusts, 
Pools,  and  Corporations,"  Ripley,  pp.  1-21. 

101 


102 


CONCENTRATION  AND  CONTROL 


Changing 
name. 


Conditions 
of  the  pool. 


Economic 
advantages. 


turers  united  their  interests  for  selling  the  product.  In  1868 
there  was  formed  an  association  called  the  Saginaw  and  Bay 
Salt  Company,  which  handled  four  fifths  of  the  salt  shipped 
from  the  Saginaw  Valley.  This  association  continued  until 
1871,  when  it  was  broken  up  as  a  result  of  dissensions;  but 
declining  prices  and  lack  of  prosperity  led  to  the  formation 
of  the  Michigan  Salt  Association  in  1876.  The  agreement 
forming  this  association  was  for  five  years,  but  it  was  renewed 
in  1881  imder  the  name  of  the  Salt  Association  of  Michigan, 
and  again  in  1886  under  the  name  of  the  Michigan  Salt 
Association. 

The  associations  were  essentially  pools;  they  had  a  very 
small  capital,  $200,000,  which  was  distributed  among 
manufacturers  of  salt  in  proportion  to  their  capacity.  After 
providing  for  the  expense  of  the  business,  there  was  an 
annual  dividend  of  only  7  per  cent  upon  the  stock.  After 
paying  this  dividend  and  the  expenses,  the  remainder  of  the 
income  was  distributed  to  the  manufacturers  in  proportion 
to  their  output.  Under  the  articles  of  agreement  a  contract 
was  made  every  year  with  each  manufacturer  to  make  salt 
wholly  upon  the  association's  account,  of  the  best  quality, 
to  be  delivered  to  the  association  according  to  the  conditions 
of  the  contract.  If  a  manufacturer  violated  his  agreement, 
he  paid  ten  cents  upon  every  barrel  of  the  salt  so  sold. 
There  was  no  restriction  imposed  upon  the  output  of  the 
various  concerns.  This  lack  of  limitation  was  due  to  the 
fact  that  the  salt  manufactories  obtained  their  heat  from 
the  by-products  in  lumber  manufacture. 

The  economic  advantages  accruing  to  the  manufacturers 
through  the  association  were  reductions  in  the  amount  of 
selling  costs  due  to  the  maintenance  of  a  single  selling  agency 
at  each  of  the  commercial  centers,  and  reasonable  prices, 
as  well  as  the  avoidance  of  cross  freights.  After  the  asso- 
ciation was  formed  in  1866  the  prices  were  somewhat  in- 
creased; they  reached  a  maximum  in  1868,  when  the  price 
of  salt  was  $3.25  a  barrel  at  Chicago.  From  this  time  on 
prices  continued  steadily  to  fall  until  in  1881,  when  the 
Chicago  prices  were  $1.05  per  barrel.     In  1871  the  salt  com- 


ILLUSTRATIONS   OF  CONCENTRATION      103 

bination  was  extended  to  include  not  only  the  Michigan 
salt  producers,  but  those  of  Ohio  and  New  York.  Prices 
were  fixed  by  the  combination  at  various  points.  The  out- 
puts of  the  fields  were  apportioned  in  1871,  and  reappor- 
tioned in  1881.  The  pool  broke  up  in  1882,  after  which 
there  was  a  further  decline  in  the  price  of  salt.  At  Chicago 
in  this  year  it  became  as  low  as  80  cents. 

Jenks  places  to  the  credit  of  this  association  the  following 
points :  — 

As  a  result  of  the  action  of  the  association  a  system  of 
state  inspection  was  established  under  which  every  block 
of  salt  placed  upon  the  market  was  rigidly  examined. 
In  consequence,  each  manufacturer  was  obliged  to  produce 
an  article  which  came  up  to  the  standard  set  by  the  associa-  Credits 
tion  and  by  the  state.  The  prices  were  reasonable  and  °  ^°° ' 
steadily  declined  during  the  life  of  the  association.  In 
consequence  of  the  combination,  less  capital  was  required  to 
conduct  the  business;  better  rates  of  transportation  were 
secured ;  there  was  no  loss  by  cross  freights ;  the  cost  of 
marketing  was  reduced;  there  was  a  reduction  in  the  losses 
through  bad  debts. 

It  would  seem  that  the  history  of  the  Michigan  Salt 
Association  was  a  creditable  one,  in  that  dealing  with  an 
essential  article,  the  output  was  increased,  the  quality  of  the 
product  improved,  the  cost  of  manufacture  reduced,  so  that 
there  was  placed  upon  the  market  a  superior  article  at  a  price 
much  less  than  when  the  association  was  organized. 

The  association  very  well  illustrates  the  instability  of  the 
pool,  since  not  having  the  sanction  of  law  and  the  support 
of  the  court  (see  p.  68)  any  member  or  group  might  \^^th-  Pools 
draw  at  any  time,  or  violate  any  of  the  articles  of  agreement  ^stable, 
and  refuse  to  pay  the  penalty;  consequently  the  history  of 
the  association,  as  of  other  pools,  was  one  of  ups  and  downs 
and  finally  inevitable  dissolution. 


104 


CONCENTRATION  AND  CONTROL 


Section  2 
THE   STANDARD   OIL  COMPANY  i 

The  report  of  the  Bureau  of  Corporations  upon  the  Stand- 
ard Oil  Company  was  pubUshed  in  1907,  and  includes  an 
account  of  the  business  to  and  including  the  year  1906. 
The  facts  here  stated  are  to  be  considered  as  of  that  date. 

The  Standard  Oil  Company,  with  its  various  affiliated 
concerns,  handled  84.2  per  cent  of  the  crude  oil  which  goes 
to  the  refineries  in  the  United  States.  One  refinery,  that  at 
Bayonne,  New  Jersey,  consumed  more  crude  oil  than  all  of 
the  independent  plants  of  the  country. 

The  Rise  of  the  Company.  —  The  rule  of  the  Standard  Oil 
Company  began  with  the  union  of  several  large  refining  com- 
panies into  a  partnership  known  as  Rockefeller,  Andrews, 
&  Flagler,  in  1867.  Three  years  later  this  partnership  was 
succeeded  by  the  Standard  Oil  Company  of  Ohio,  with  a 
capitalization  of  $1,000,000;  and  with  its  organization  began 
the  campaign  for  the  control  of  the  refining  business  of  the 
country.  When  the  company  was  formed,  it  did  not  control 
more  than  10  per  cent.  Within  ten  years  the  Standard 
Oil  and  associated  companies  controlled  about  90  per  cent. 
Monopoly  was  accomplished  in  a  decade. 

Not  only  did  this  company  control  the  refining  business, 
but  it  controlled  every  important  pipe  line  in  the  oil  fields. 
The  only  serious  competitor  was  the  Tide  Water  Pipe  Line 
Company,  which,  however,  in  a  few  years  passed  to  the  Stand- 
ard. Thus  the  Standard  for  many  years  had  no  rival  in 
pipe  line  transmission  of  oil  to  the  Atlantic  coast ;  and  at  no 
time  was  there  more  than  one  independent  pipe  line  to  the  sea- 
board and  this  much  smaller  than  those  of  the  Standard  Oil. 

In  1882  the  Standard  Oil  interests  formed  the  Standard  Oil 
Trust,  under  which  the  entire  stock  holdings  of  fourteen  com- 
panies and  a  majority  interest  in  twenty  six  additional  con- 
cerns were  held  by  trustees.     The  capitalization  of  the  trust 

1  Report  of  the  Commissioner  of  Corporations  on  the  Petroleum  Industry: 
Part  I,  "  Position  of  the  Standard  Oil  Company  in  the  Petroleum  Industry  "  ; 
Part  II,  "Prices  and  Profits."    Washington  Government  Printing  Office,  1907. 


ILLUSTRATIONS   OF   CONCENTRATION      105 


at  that  time  was  $70,000,000,  and  the  appraised  value  of  its  Capitaliza- 
property  in  excess  of  $55,000,000.  Of  the  $70,000,000  trust  J|^°^°^  *^^ 
certificates  nine  of  the  trustees  owned  more  than  $46,000,000. 
The  appraised  value  of  the  trust  by  1892  had  accumulated 
to  $126,600,000.  As  a  result  of  a  decision  against  the  Stand- 
ard Oil  Company  of  Ohio  in  1882  (see  p.  174)  and  contempt 
proceedings,  the  Standard  Oil  Company  of  New  Jersey  was 
organized,  but  not  until  1897. 

Thus,  the  Standard  Oil  Company  of  New  Jersey,  a  holding  Trust  and 
concern,  was  a  direct  successor  to  the  trust,  the  only  differ-  ^^j^^^^y 
ence  being  that  the  holding  company  owned  all  of  the  stock  the  same 
of  the  subsidiary  companies,  instead  of  being  a  trustee  for  "^  essence. 
this  stock;   each  alike  controlled  the  business  of  the  subsid- 
iary companies,  and  received  and  distributed  all  dividends. 
The  officers  of  the  constituent  companies  in  one  case  had 
their  orders  from  the  trustees,  in  the  other  from  the  ofl&cers  of 
the  corporation  composed  of  substantially  the  same  men. 

The  authorized  capital  of  the  Standard  Oil  Company  of 
New  Jersey  was  $100,000,000,  of  which  $98,338,300  was 
issued.  The  Standard  Oil  Company  included  in  America 
eleven  companies  mainly  engaged  in  refining,  five  lubricating 
oil  companies,  three  crude  oil  companies,  fourteen  pipe  line  Scope  of 
companies,  a  tank  line  company,  six  marketing  companies,  operations, 
and  sixteen  natural  gas  companies.  Its  business  abroad  was 
done  through  sixteen  companies.  In  addition  to  these  com- 
panies seven  pipe  lines  and  refining  companies  were  closely 
affiliated  with  or  controlled  by  the  Standard  Oil  Company. 

The  Monopolistic  Position  of  the  Company.  —  While  the 
statistics  of  production  show  that  the  Standard  Oil  Company 
was  dominant  in  all  departments  of  the  business,  it  did  not 
hold  this  position  through  a  direct  monopoly  of  the  owner- 
ship of  the  wells ;  since  in  1905,  of  approximately  135,000,000  standard 
barrels  of  crude  oil,  not  over  one  sixth  came  from  the  wells  ^^ 
owned  by  the  Standard,  and  in  no  one  district  did  its  own 
wells  produce  more  than  50  per  cent  of  the  output.  But 
while  the  Standard  did  not  control  the  wells,  it  controlled 
the  pipe  lines,  which  are  the  only  means  by  which  oil  may 
be  cheaply  transported.     Thus  the  Standard  was  almost  the 


106 


CONCENTRATION  AND  CONTROL 


sole  purchaser  for  the  oil  owned  by  others.  The  control  of 
the  pipe  lines  controlled  the  situation  because  the  refinery 
at  the  distant  town  was  not  able  to  pay  the  railway  rates 
upon  crude  oil,  which  are  very  high  as  compared  with  the  pipe 
line  transportation. 

The  Appalachian,  Lima-Indiana,  Illinois,  and  Mid-Con- 
tinent are  the  four  great  fields  which  produce  the  most  valu- 
able oil  for  illuminating  purposes;  and  in  these  four  fields 
there  was  only  one  pipe  line  other  than  the  Standard's,  that 
of  the  Pure  Oil  Company,  a  line  less  than  550  miles  in 
length.  The  percentage  of  business  of  these  four  fields 
handled  by  the  Standard  varied  from  84  to  96  per  cent. 

In  the  refining  industry  the  plants  of  the  Standard  were 
favorably  located  and  of  high  efficiency.  In  1904  it  pro- 
duced 86.5  per  cent  of  the  refined  illuminating  oil,  leaving 
13.5  per  cent  to  the  independent  refineries.  Of  the  export 
business.  Standard  Oil  handled,  in  1904,  13,240,113  barrels, 
or  87  per  cent,  of  the  total  for  the  country. 

In  the  marketing  business  Standard  Oil  was  in  an  es- 
pecially strong  position  because  of  the  wide  and  wise  dis- 
tribution of  its  plants,  because  of  its  pipe  lines,  tank  cars,  and 
many  local  storage  plants.  This  system  of  distribution  was 
so  complete  that,  for  the  most  part,  it  eliminated  the  jobber, 
and  dealt  directly  with  the  retailer  or  with  the  individual 
consumer.  For  the  United  States  the  known  Standard  con- 
cerns marketed  88.7  per  cent  of  the  illimiinating  oil. 

The  causes  which  led  to  the  dominating  position  of  the 
Standard  Oil  Company  were  efficiency  of  organization, 
magnitude,  integration,  utilization  of  by-products,  and  uni- 
fied marketing ;  in  short,  all  of  the  advantages  which  are 
described  (pp.  8-20)  as  economic  causes  for  concentration. 
But  in  securing  the  position  which  Standard  Oil  occupied 
there  is  no  doubt  that  very  important,  if  not  determin- 
ing, factors  in  reaching  it  were  the  following  special 
causes :  — 

Railroad  discriminations  in  favor  of  Standard  Oil  were 
continuous  from  the  formation  of  the  Standard  Oil  Company 
of  Ohio  until  the  railroads  under  the  Interstate  Commerce 


ILLUSTRATIONS  OF  CONCENTRATION        107 

Commission  were  compelled  to  discontinue  these  practices. 
The  rebates  secured  by  Standard  Oil  from  western  Penn- 
sylvania to  the  seacoast  were  frequently  a  considerable  part  Railroad 
of  the  cost  of  transportation.  At  one  time  when  the  open  ^iscnmma^ 
rate  from  Pennsylvania  to  the  coast  was  $1.44)^,  80  cents 
was  the  rate  for  the  Standard  Oil.  Another  form  of  advan- 
tage was  to  give  lower  rates  on  oil  in  tank  cars  than  on  oil  in 
barrels.  At  other  times  the  published  rates  were  reduced 
for  short  periods  after  previous  notice  to  the  Standard,  so 
that  large  shipments  could  be  made  by  that  company,  after 
which  the  rates  were  again  advanced. 

Another  advantage  which  the  Standard  Oil  had  was 
through  its  pipe  lines.  These  gave  it  almost  complete  mo- 
nopoly of  the  cheapest  form  of  transportation.  Even  after 
the  pipe  lines  were  declared  to  be  common  carriers,  the 
Standard  Oil  Company  still  refused  to  transport  the  oil  of  Unfair  use 
its  competitors;  or  if  it  transported  the  same,  it  was  with  ^^gg^^ 
excessive  rates,  under  such  conditions  as  to  make  competi- 
tion extremely  difficult.  Where  there  was  a  competing  line 
the  Standard  would  attack  it  by  purchasing  the  crude  oil  of 
the  wells  in  the  vicinity  of  the  independent  line  at  excessive 
prices,  sometimes  from  15  to  20  cents  a  barrel  more  than 
the  current  price.  In  this  way,  even  at  a  loss,  the  Standard 
prevented  the  competing  lines  from  getting  business,  re- 
couping the  loss  by  profits  from  other  parts  of  its  system. 
If  the  pipe  lines  had  in  fact  acted  as  common  carriers,  and 
transported  oil  at  reasonable  rates  at  points  as  asked,  a  very 
important  element  in  the  growth  of  the  monopolistic  power 
of  the  Standard  would  have  been  lacking. 

The  Standard  Oil  Company  maintained  a  monopoly  from 
the  establishment  of  the  Standard  Oil  Trust  in  1882  until  the 
time  it  was  dissolved  by  the  order  of  the  Supreme  Court  in  Monopoly 
1911.  Because  of  this  the  organization  was  able  to  charge  p"'^^^- 
excessive  prices  which  gave  enormous  profits.  According 
to  the  Commissioner  of  Corporations,  the  following  points 
appear  regarding  prices  :  — 

1.  There  was  a  marked  increase  in  the  margin  between  the 
price  of  crude  oil  and  its  leading  finished  products,  after  the 


108    CONCENTRATION  AND  CONTROL 

formation  of  the  Standard  Oil  Trust,  and  even  during  the 
past  ten  years. 

2.  Standard  Oil  has  sold  illuminating  and  free  petroleum 
products  cheaper  abroad  than  at  home,  the  difference  being 
very  great  in  1902. 

3.  Standard  Oil  discriminated  greatly  in  fixing  prices  in 
different  sections  and  different  towns,  charging  exorbitant 
rates  when  there  was  no  competition,  very  low  rates,  and  even 
prices  so  low  as  to  give  a  loss,  in  places  where  there  was 
competition. 

4.  The  profits  of  the  Standard  Oil  Company  especially  in 
its  domestic  business  were  excessive. 

5.  The  real  source  of  the  Standard's  power  was  not  in 
superior  service  but  in  long-continued  use  of  unfair  methods 
of  competition. 

6.  The  Standard  by  using  its  influence  as  a  larger  shipper 
secured  excessive  prices  for  lubricating  oil  from  the  railroads 
of  the  country.^ 

Margins  and  Profits.  —  The  margin  between  crude  oil  and 
illuminating  oil  increased  markedly  from  1897-98  to  1903- 
04.  In  1898  it  was  5.3  cents;  in  1903,  7.1,  an  increase  of 
1.8.  Similar  increases  of  margins  applied  to  gasoline  and 
lubricating  oil.  Even  if  the  profits  due  to  increase  in  margins 
be  placed  at  only  1.5  cents  per  gallon,  on  1,400,000,000  gallons 
produced  in  1904,  the  increased  profit  would  mean  $21,000,000. 
Similar  calculations  give  $25,000,000  for  1903.  Correspond- 
ing with  this  calculation,  the  profits  of  the  company  in  1896- 
97  were  in  the  neighborhood  of  $34,000,000;  whereas,  in 
1903  they  were  $81,000,000,  an  increase  of  $47,000,000.  In 
1893-94,  when  the  margins  were  the  lowest,  the  profits  of 
Standard  Oil  on  the  capitalization  of  the  company  were  be- 
tween 11  and  12  per  cent;  in  1896  they  had  reached  23  per 
cent ;  and  since  that  time  to  dissolution  there  were  enormous 
profits,  due  to  the  increase  of  margins.  Prices  in  the  United 
States  for  two  years,  taking  into  account  both  grade  and 
freight,  have  been  from  one  to  nearly  three  cents  higher  than 
those  which  obtain  in  London  and  Hamburg. 

1  "Petroleum  Industry,"  Part  2,  1907,  pp.  1-2. 


ILLUSTRATIONS   OF  CONCENTRATION      109 

Price  Discriyninations.  —  Sectional  price  discrimination 
was  shown  by  the  very  great  variation  in  price  among 
the  different  cities,  being  relatively  low  where  competition 
was  keen,  and  very  high  where  monopoly  was  complete  or 
nearly  so.  In  1904  at  Los  Angeles  the  price  was  6.7  as  com- 
pared with  12.3  at  San  Francisco.  Prices  have  been  as  high 
as  16.61  at  Butte  at  the  same  time  they  were  as  low  as  7  in 
other  cities.  Illustrating  the  situation  very  well,  in  New  York 
City  and  vicinity,  the  very  seat  of  the  Standard's  greatest 
refineries,  the  price  was  10.5,  while  at  Worcester  it  was  7.5, 
and  at  Cincinnati  and  Cleveland  7  or  less. 

Excessive  Profits. — The  total  dividends  paid  by  the  Stand- 
ard Oil  Company  from  1882  to  1906  were  over  $550,000,000, 
on  an  average  over  $22,000,000  a  year.  This,  however,  does 
not  represent  the  total  net  earnings,  since  there  were  large 
accumulations  not  declared  as  dividends.  From  1882  to  1896 
the  profits  on  the  capital  stock  and  trust  certificates  aver- 
aged about  19  per  cent.  In  1903  they  had  reached  83  per 
cent  and  the  average  from  1903  to  1905  was  about  68  per 
cent,  annually.  The  total  profits  from  1897  to  1906  are  be- 
lieved to  be  somewhere  from  $790,000,000  to  $850,000,000 ; 
and  this  upon  properties  the  value  of  which  originally  aggre- 
gated not  more  than  $75,000,000.  These  figures  show  that 
after  monopoly  was  obtained  and  improvements  made  in 
transportation  and  manufacturing,  it  was  possible  because 
of  this  situation  to  secure  these  enormous  profits. 

It  is  notable  that  excessive  profits  came  about,  not  by  tak- 
ing any  very  large  amount  from  a  single  gallon  of  oil,  not  more 
than  two  or  three  cents,  and  yet  these  two  or  three  cents 
multiplied  by  the  enormous  number  of  gallons  used  by  the 
people  of  the  United  States  led  to  the  vast  profits  above  given. 
The  Standard  Oil  industry  very  well  illustrates  the  principle 
that  if  a  conunodity  is  widely  needed,  even  if  one  family  uses 
a  relatively  small  amount,  and  the  average  annual  tribute 
levied  upon  that  family  is  small,  if  there  be  a  moderate 
excess  beyond  that  of  a  fair  price,  the  total  illegitimate 
profits  of  the  organization  may  be  fabulous ;  not  only  so,  but 
the  accumulation  of  these  enormous  profits  in  the  hands  of 


110  CONCENTRATION  AND  CONTROL 

a  few  men  may  enable  them  to  invest  in  other  lines  of  busi- 
ness which  have  monopolistic  elements,  and  they  thus  gain 
a  commanding  influence  in  the  industry  of  the  country.  It 
is  well  known  that  the  excessive  profits  which  have  gone  to 
the  owners  of  the  Standard  Oil  Company  have  enabled  them 
to  enter  many  other  great  lines  of  business,  so  that  they,  with 
their  railroads,  industrial  organizations,  trust  companies,  and 
banks,  are  one  of  the  two  great  dominating  centers  which  in 
large  measure  control  the  money  of  the  United  States.  The 
disintegration  of  the  Standard  Oil  Company  by  the  order  of 
the  courts  is  discussed  on  pp.  181-183. 

Summary  of  Evils.  —  In  summary  the  Standard  Oil  Com- 
pany illustrates  very  clearly  a  number  of  evils  which  have 
risen  in  connection  with  great  combinations. 

This  company  has  engaged  in  the  following  practices  :  — 

1.  From  the  railroads  it  has  secured  rebates  and  draw- 
backs ;  has  had  better  service  than  competing  corporations ; 
has  had  rates  manipulated  for  its  own  purposes;  has  had 
lower  rates  on  oil  in  tanks  than  in  barrels ;  has  secured  infor- 
mation as  to  business  of  competing  companies. 

2.  It  has  owned  pipe  lines;  by  its  position  of  ownership 
it  has  had  great  advantages  through  refusing  in  good  faith  to 
execute  the  duties  of  common  carriers  to  competing  organiza- 
tions. 

3.  Because  of  its  monopoly  it  has  been  able  to  increase  its 
margins  beyond  reasonable  amounts,  and  thus  has  secured 
excessive  profits. 

4.  It  has  disposed  of  its  products  cheaper  abroad  than  at 
home. 

5.  It  has  had  greatly  varying  prices  in  different  sections 
of  the  country,  the  prices  being  made  very  low  whenever 
competition  appeared,  the  purpose  being  to  destroy  competi- 
tors, and  it  has  succeeded  in  many  instances. 

6.  It  has  pursued  methods  of  espionage  upon  competing 
concerns  in  order  more  advantageously  to  compete  with  and 
destroy  them. 

7.  It  has  used  secret  companies  to  kill  competitors. 


ILLUSTRATIONS  OF  CONCENTRATION      111 

Section  3 
THE   UNITED   STATES   STEEL   CORPORATION  i 

Early  Consolidations.  —  Before  the  organization  of  the 
United  States  Steel  Corporation,  consolidation  of  the  iron 
and  steel  industry  had  made  much  progress.  Prior  to  1898 
the  steel  business  was  distributed  among  a  large  number  of 
relatively  small  companies,  although  even  at  that  time  a 
number  of  steel  companies  had  obtained  considerable  promi- 
nence, among  which  were  the  Illinois  Steel  Company  and  the 
Carnegie  Steel  Company,  The  organizations  producing  the 
more  finely  finished  materials  were  almost  altogether  separate 
from  those  which  made  pig  iron,  steel  billets,  and  the  rela- 
tively heavy  and  simple  finished  products,  such  as  rails, 
structural  material,  and  plates.  In  1898  there  began  a 
series  of  mergers  which  resulted  in  the  development  of  a 
number  of  very  large  companies,  each  one  having  as  elements 
a  number  of  organizations  before  independent.  The  earliest 
of  these  was  the  Federal  Steel  Company  incorporated  in 
1898  with  a  capital  of  $100,000,000,  This  included  the 
former  Illinois  Steel  Company,  the  Minnesota  Iron  Com- 
pany, the  Lorain  Steel  Company,  and  the  boats  and  rail- 
ways owned  by  these  companies.  By  this  merger  the  steel 
business  was  for  the  first  time  integrated  from  the  ore  to 
the  coarser  of  the  finished  products. 

The  National  Steel  Company  was  formed  in  1879  with  a 
capital  of  $59,000,000.  The  plants  acquired  were  mainly 
in  Ohio. 

In  1900  the  Carnegie  interests  were  organized  into  the 
Carnegie  Company  of  New  Jersey,  with  a  capitalization  of 
$320,000,000.  This  new  organization  united  the  Carnegie 
Steel  Company,  the  H.  C.  Frick  Coke  Company,  and  the 
Oliver    Iron    Minmg    Company.     The    company   also   had 

•  Report  of  the  Commissioner  of  Corporations  on  the  Steel  Industry  : 
Part  I,  Organization,  Investments,  Profits,  and  Position  of  the  United  States 
Steel  Corporation ;  Part  II,  Cost  of  Production.  Washington  Government 
Printing  Office,  1911.  Hearings  before  Committee  on  Investigation  of 
Umted  States  Steel  Corporation,  Parts  1  to  63  inclusive,  p.  5594. 


112    CONCENTRATION  AND  CONTROL 

control  of  a  railway  from  Lake  Erie  to  Pittsburg  and  owned 
boats  on  the  lakes.  Thus  there  was  even  greater  integration 
than  in  the  case  of  the  Federal  Steel  Company,  in  that  a 
great  coke  company  was  included. 

The  three  great  companies  mentioned  were  engaged 
chiefly  in  the  manufacture  of  crude  material  or  the  coarse 
finished  products  such  as  pig  iron,  steel  billets,  rails,  beams, 
plates,  and  bars. 

During  the  same  period  the  companies  producing  the 
more  refined  products  were  also  largely  consolidated  into 
the  American  Tin  Plate  Company  in  1898,  the  American 
Steel  and  Wire  Company  in  1898,  the  National  Tube  Company 
in  1899,  the  American  Steel  Hoop  Company  in  1899,  and  in 
1900  the  American  Sheet  Steel  Company,  the  American 
Bridge  Company,  and  the  Shelby  Steel  Tube  Company. 
Each  of  these  organizations,  with  the  exception  of  the 
Shelby  Company,  which  was  smaller,  had  a  capitaUzation 
varying  from  $33,000,000  to  $90,000,000. 

In  addition  to  the  above  consolidations,  all  of  which  later 
entered  into  the  United  States  Steel  Corporation,  there  were 
enlargements  and  consolidations  of  other  important  com- 
panies, operating  in  the  northeastern  quarter  of  the  United 
States,  among  which  are  notably  the  Republic  Iron  and 
Steel  Company,  the  Pennsylvania  Steel  Company,  the 
Cambria  Steel  Company,  the  Lackawanna  Steel  Company, 
and  the  Jones  and  Laughlin  Steel  Company.  These  com- 
panies, at  the  times  of  the  reorganizations  or  later,  increased 
their  capitalizations  to  amounts  varying  from  $27,250,000 
to  $47,500,000. 

In  the  South  the  important  Tennessee  Coal,  Iron,  and  Rail- 
road Company  had  continued  to  expand  during  the  same 
period,  as  had  also  the  Colorado  Fuel  and  Iron  Company  in 
the  West. 

Causes  of  Consolidation.  —  The  Commissioner  of  Corpora- 
tions gives  as  the  causes  which  led  to  the  consolidations 
described  the  desire  to  restrict  competition  among  the 
constituent  companies  and  the  desire  for  integration.  Both 
of   these   purposes   were   for   the    time   accomplished.     For 


ILLUSTRATIONS   OF   CONCENTRATION      113 

instance,  the  constituent  companies  of  the  Federal  Steel  did 
not  compete  among  themselves.  The  matter  of  integration 
will  be  considered  later. 

During  the  period  before  consolidation  the  competition 
had  been  severe  and  prices  alternately  high  and  low,  depend- 
ing upon  the  trade  conditions  and  the  extent  of  cooperation. 
For  a  time  excessive  prices  would  be  maintained ;  but  at 
times  of  depression  sooner  or  later  agreements  or  pools 
would  break  and  prices  would  go  down.  Thus  upon  the 
breaking  up  of  an  agreement,  prices  for  steel  rails  fell  from 
$28  per  ton  in  1896  to  $17  or  $18  in  1897  and  1898.  After 
the  combination  had  been  reestablished,  prices  for  rails  went 
to  $35  per  ton  in  1899  and  1900,  but  in  the  earlier  part  of 
1901  fell  to  $26.  Steel  billets  went  from  $16.25  per  ton  to  Unstable 
$39.50  and  back  to   $16.50  between   December,  1898,  and  P"f  ^ 

'  '  under  com- 

October,  1900.  During  the  same  time  wire  nails  went  from  $20  petitive 
to  $50  per  ton  and  then  back  to  $30.  These  figures  show  how  ^y^^^"^- 
unequal  and  unsatisfactory  were  the  conditions  as  to  prices. 
When  the  independent  mills  or  the  combined  companies 
could  get  together,  and  demands  were  large,  prices  would 
become  abnormally  high ;  as  the  demands  decreased  and  the 
full  capacity  of  the  mills  was  not  required,  the  combination 
would  break  and  the  prices  become  abnormally  low. 

Organizations  of  the  Corporation.  —  Before  the  consolida- 
tions of  the  companies  producing  highly  finished  products, 
the  constituent  companies  bought  their  steel  billets  from 
the  primary  companies.  After  the  consolidation  they  began 
to  acquire  ore  and  coal  lands,  to  build  blast  furnaces,  and  to 
manufacture  their  own  steel  ingots;  and  thus  they  were 
planning  to  cease  buying  crude  steel  from  the  primary 
companies.  This  led  the  Carnegie  Company  to  plan  to 
build  several  plants  for  making  the  finished  products. 
Similar  plans  were  made  by  the  Federal  Steel  Company. 
This  contemplated  extension  of  the  two  groups  to  become 
completely  independent  was  the  final  factor  which  led 
suddenly  in  1901  to  the  formation  of  the  United  States  Steel 
Corporation.  If  the  great  companies  of  both  groups  could 
be  united  into  a  single  corporation,  the  iron  industry  would  be 


114 


CONCENTRATION  AND  CONTROL 


Companies 
consoli- 
dated. 


A  holding 
company. 


completely  integrated.  The  different  lines  of  work  could 
be  divided  among  the  subsidiary  companies,  and  there  would 
be  great  economy.  Obviously  also  the  combination  would  be 
in  a  more  advantageous  position  to  maintain  prices  than  a 
number  of  independent  companies.  It  was  plain  that  the 
combination  could  not  succeed  unless  the  Carnegie  Company 
could  be  acquired.  Successful  negotiations  were  entered 
into  with  Mr.  Andrew  Carnegie  to  this  end,  and  thus,  in 
April,  1901,  the  United  States  Steel  Corporation  was  formed, 
consisting  of  the  Carnegie  Company  of  New  Jersey,  the 
Federal  Steel  Company,  the  American  Steel  and  Wire 
Company,  the  National  Tube  Company,  the  National  Steel 
Company,  the  American  Tin  Plate  Company,  the  American 
Steel  Hoop  Company,  and  the  American  Sheet  Steel  Com- 
pany. Shortly  afterward  there  were  acquired  the  American 
Bridge  Company,  the  Lake  Superior  Consolidated  Iron  Mines, 
the  Bessemer  Steamship  Company,  and  the  Shelby  Steel 
Tube  Company.  Each  one  of  the  manufacturing  organiza- 
tions included  a  number  of  manufacturing  plants  distributed 
at  various  points  as  well  as  other  properties  necessary 
to  integrate  the  business,  such  as  ore  companies,  coke  com- 
panies, dock  companies,  railroad  companies,  gas  companies, 
water  companies,  etc. 

The  Steel  Corporation  as  organized  was  essentially  a  hold- 
ing company,  having  the  stock  of  all  of  the  subsidiary 
companies.  These  subsidiary  companies  held  their  sub- 
ordinate properties  in  two  classes,  in  fee  and  the  stock  of 
the  subordinate  companies.  Thus  the  Carnegie  Company 
of  New  Jersey  was  the  holding  company  of  the  stock  of 
twenty  companies,  ranging  from  the  various  works  of  the 
Carnegie  Steel  Company  of  Pennsylvania  to  the  great 
Frick  Coke  Company. 

The  United  States  Steel  Corporation,  when  formed,  had 
steel  works  with  an  annual  capacity  of  9,400,000  tons  of 
crude  steel,  1000  miles  of  railway,  112  lake  ore  vessels,  iron 
ore  deposits  estimated  to  contain  from  500,000,000  to 
700,000,000  tons  of  ore,  and  more  than  50,000  acres  of  high 
grade   coal   lands   and   numerous   related    properties.     The 


ILLUSTRATIONS   OF  CONCENTRATION      115 

total  number  of  plants  under  the  control  of  the  corporation  Capacity 
exceeded  200.     Since  its  organization  it  has  acquired  three  ^°^ 

.       .        ,  .         .         ,  .   ,  ,  resources. 

steel  companies  m  the  same  region  in  which  were  located  the 
other  properties  of  the  corporation,  namely,  Union  Steel, 
Sharon  Steel,  and  Clairton  Steel,  these  being  acquired  between 
1902  and  1904.  Finally,  there  was  added  in  1907  the  great 
southern  property,  the  Tennessee  Coal,  Iron,  and  Railroad 
Company. 

Overcapitalization.  —  The  capitalization  of  the  company 
in  1901,  after  acquiring  the  Shelby  Company,  was  as 
follows :  — 

Preferred  stock       $510,205,743 

Common  stock 508,227,394 

Steel  Corporation  bonds  . 303,450,000 

Underlying  bonds 59,091,657 

Purchase-money  obligations   and   real-estate 

mortgages 21,872,023 

Total $1,402,846,817 

As  a  result  of  careful  investigation,  the  Commissioner  of 
Corporations  concluded  that  a  fair  valuation  of  the  entire 
physical  property  of  the  United  States  Steel  Corporation  at 
the  time  of  its  organization  was  8676,000,000.  If  the  val- 
uation were  made  upon  a  basis  of  the  market  value  of  the 
properties  acquired,  it  would  be  approximately  $793,000,000, 
and  this  figure  should  include  the  good  will  of  the  going 
business.  Using  the  higher  figure,  the  capitalization  of  the 
United  States  Steel  Corporation  exceeded  its  face  value  by 
$609,000,000.  This  shows  conclusively  that  the  common 
stock  at  the  time  it  was  issued  was  all  water  and  that  other 
securities  were  inflated.  Indeed,  the  managers  of  the  corpo-  Overcap- 
ration  justified  their  capitalization  only  bj'  placing  the  ore  itahzation. 
deposits  at  practically  one  half  of  the  complete  valuation, 
8700,000,000,  a  dollar  a  ton ;  which,  as  any  one  who  was  or 
is  familiar  with  the  situation  laiows,  was  an  excessive  valua- 
tion in  1901,  especially  as  a  large  part  of  the  ores  are  not 
owned  in  fee,  and  royalty  must  be  paid  to  the  fee  holders. 
This  valuation  by  the  company  was  later  admitted  to  be 


116 


CONCENTRATION  AND  CONTROL 


excessive,  since  in  1907  the  value  placed  upon  the  ore  by 
the  company  was  about  fifty  cents  a  ton,  which  if  correct 
would  indicate  that  the  value  in  1901  was  still  lower.  The 
Bureau's  estimate  of  the  value  of  the  ore  at  the  time  of  the 
organization  is  about  $100,000,000.  The  comparisons  be- 
tween the  estimated  value  of  the  properties  by  the  corpora- 
tion and  by  the  Bureau  is  shown  by  the  following  table :  — 

Table  31.     Valtte  of   Tangible  Assets  Acquired  by  Steel  Corpora- 
tion  IN    1901,  AS    Computed    by  Bureau,  Compared  with    Estimate 

OF    COKPOBATION    SUBMITTED    IN   THE    HoDGE    SuiT    IN    JUNE,    1902 


Bureau's  Esti- 

Corporation's Es- 

Class of  Property 

mate  OP  Tangible 

timate  OP  Tangi- 

Difference > 

Values  in  1901 

ble  Values  in  1902 

Ore  property     .     . 

$100,000,000 

$700,000,000 

$600,000,000 

Manufacturing 

plants,  including 

blast  furnaces    . 

250,000,000 

348,000,000 

98,000,000 

Railroad,      steam- 

ship,  and    dock 

property    .     .     . 

91,500,000 

120,340,000  2 

28,840,000 

Coal      and      coke 

property    .     .     . 

80,000,000 

100,000,000 

20,000,000 

Natural  gas  prop- 

erty     .... 

20,000,000 

20,000,000 

Limestone      prop- 

erties   .... 

4,000,000 

4,000,000 

Cash  and  cash  as- 

sets      .... 

136,000,000 

164,660,000  3 

28,160,000 

Total     .     .     . 

$682,000,000 

$1,457,000,000 

$775,000,000 

1  A  part  of  the  differences  between  the  two  estimates  is  accounted  for 
through  additions  made  to  property  during  the  interval  from  April  1,1901, to 
July  1,  1902,  such  additions,  of  course,  being  included  in  the  corporation's 
figures. 

2  This  figure  includes  $40,340,000  of  indebtedness  which  was  not  included 
in  the  estimate  of  the  corporation,  this  addition  being  made  in  order  to  render 
the  estimates  comparable. 

'  In  arriving  at  this  figure  purchase  money  obligations  and  real  estate 
mortgages  of  $16,369,000,  which  were  deducted  by  the  corporation,  were  re- 
stored by  the  Bureau  to  make  the  amounts  comparable. 


ILLUSTRATIONS    OF   CONCENTRATION      117 

As  an  incident  to  the  organization  of  the  company,  of  the 
stock  issued  by  the  corporation  in  1901,  $150,000,000,  in- 
cluding $40,000,000  preferred,  was  for  promoting  and  under- 
writing services.  The  cash  received  from  this  stock  was 
probably  m  the  neighborhood  of  $100,000,000. 

Since  the  corporation  was  organized  in  1901,  its  earnings 
have  been  sufficiently  large  so  that  aside  from  paying  interests 
on  bonds,  full  dividends  of  7  per  cent  on  the  preferred  stock, 
and  from  2  to  4  per  cent  on  the  common  stock,  sufficient 
money  has  been  saved  so  that  the  net  additions  to  the 
investments,  December  31,  1910,  amounted  to  $504,928,653;  Water  made 
thus,   if  the  market  value  of  the  consolidating  companies  ^^*°  ^^^" 

"  ^  stance. 

IS  taken  as  a  basis,  the  excessive  capitalization  had  at 
that  time  been  reduced  to  about  $105,000,000.  Using  a 
more  conservative  valuation  of  the  property  made  by  the 
Commissioner  of  Corporations,  the  amount  of  water  at  the 
end  of  December,  1910,  would  be  $215,000,000. 

If  the  iron  ore  be  now  appraised  on  the  basis  of  assessed 
valuation,  and  this  seems  reasonable,  the  ores  controlled  by 
the  corporation  are  worth  not  less  than  $380,000,000  (see 
pp.  129-132).  But  a  considerable  portion  of  these  ores  are 
subject  to  a  royalty  to  the  feeholders.  If  one  fourth  be  de- 
ducted to  compensate  for  this,  the  value  of  the  ore  to  the 
corporation  would  be  $285,000,000.  Using  this  figure, 
rather  than  $100,000,000,  for  the  present  value  of  the  ores, 
the  appraisal  of  the  properties  of  the  corporation  exceeds 
its  capitalization  by  $70,000,000.  Apparently  the  mighty 
flood  of  water  put  upon  the  market  when  the  United  States 
Steel  Corporation  was  organized  has  largely  or  wholly  been 
transformed  into  substance. 

Earnings.  —  The  net  earnings  of  the  Steel  Corporation  by 
years  from  1901  to  1910  are  shown  by  Table  32. 


118 


CONCENTRATION  AND  CONTROL 


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ILLUSTRATIONS  OF  CONCENTRATION      119 

According  to  the  Commissioner  of  Corporations  the  net 
earnings  on  the  actual  investment  of  the  Steel  Corporation 
from  1901  to  1910,  ten  years,  was  12  per  cent.  It  thus  ap- 
pears, according  to  the  Bureau,  that  the  earnings  of  the 
corporation  for  ten  years  have  been  $1,100,000,000,  or 
$110,000,000  a  year. 

According  to  Mr.  F.  J.  MacRae,  for  the  nine  years  from 
January  1,  1902,  to  December  1,  1910,  the  adjusted  net 
earnings  amounted  to  $1,029,685,389,  or  approximately  $13 
per  ton.  He  concludes  that  the  percentage  of  net  earnings 
for  sales  to  outside  consumers  for  this  period  amounted 
approximately  to  29  per  cent;  and  that  29  per  cent  of  the 
selling  price  is  equivalent  to  40  per  cent  of  the  cost.^ 

Proportion  of  Business.  —  The  proportion  of  the  iron  and 
steel  business  of  the  country  done  by  the  organization  is  shown 
by  the  following  table :  — 

Table  33.  Pkoportion  of  Outpttt  of  Principal  Iron  attd  Steel 
Products  for  United  States  Steel  Corporation  and  for  Inde- 
pendent Companies,  Respectively,  in  1901  and  1910 


Steei,  Corpora- 

Independent Com- 

tion's Percent- 

panies' 

Perce  NT- 

Products 

ages 

AGES 

1901 

1910 

1901 

1910 

Pig  iron,  spiegel,  and  ferro  .     .     . 

43.2 

43.4 

56.8 

56.6 

Steel  ingots  and  castings.      .     .     . 

65.7 

54.3 

34.3 

45.7 

Rails 

59.8 

58.9 

40.2 

41.1 

Structural  shapes 

62.2 

47.0* 

37.8 

53.0* 

Plates  and  sheets  of  all  kinds  ^  .     . 

64.6 

49.7* 

35.4 

50.3* 

Black  plate  produced  in  tin  mills  . 

79.8 

52.9 

20.2 

47.1 

Coated  tin-mill  products      .     .     . 

73.1 

61.1 

26.9 

38.9 

Black  and  coated  sheets  produced 

in  sheet  mills 

67.3 

38.9 

32.7 

61.1 

Wire  rods 

77.7 

67.3 

22.3 

32.7 

Wire  nails 

68.1 

55.5 

31.9 

44.5 

Wrought  pipe  and  tubes  '    .     .     . 

57.2 

38.2 

42.8 

61.8 

Seamless  tubes  ^ 

82.8 

55.3 

17.2 

44.7 

1  Investigation  U.S.  Steel  Corporation,  53,  Part  I,  pp.  3613-3614. 

*  Includes  sheets  for  tinning,  galvanizing,  and  other  coatings. 

'  These  percentages  are  based  on  capacity  and  not  production.     The  capac- 
ity of  independent  companies  is,  moreover,  partly  estimated. 

*  For  1909;  figures  for  1910  not  available. 


120    CONCENTRATION  AND  CONTROL 

The  total  production  of  the  iron  and  steel  of  the  country 

by  the  Steel  Corporation  fell  from  60.6  per  cent  in  1901  to 

Reduce         51.6  per  cent  in  1909,  and  of  steel  ingots  and  castings  the 

ageT*"        *o*^^  ^^^^  ^''om  65.7  in  1901  to  54.3  in  1910.      While  there  has 

output.  been  a  decrease  in  the  percentage  of  the  domestic  production, 

the  total  business  of  the  corporation  has  vastly  increased. 

The  crude  ingots  produced  increased  from  9,743,918  tons  in 

1902  to  14,179,369  in  1910,  or  45.5  per  cent.     The  foreign 

business  has  been  greatly  extended,  and  of  this  line  the  Steel 

Corporation  controls  about  95  per  cent.     In  1911  there  were 

exported    by   the  corporation   1,719,272  tons  of  steel  and 

other  finished  products.    Such  products  are  sold  considerably 

cheaper  abroad  than  at  home,  the  differences  per  gross  ton 

for  1910  being  as  follows :    Steel  rails,  $3.84 ;    plates,  $3.93 ; 

standard  shapes,  $4.50.^ 

The  foreign  business  is  done  through  the  United  States 
Steel  Products  Export  Company.^  This  company  now  con- 
trols ninety  per  cent  of  the  total  steel  export  trade  of  the 
United  States.  Until  1904  the  company  was  allowed  a 
three  per  cent  commission  on  its  business;  but  in  1904  it 
was  reduced  to  two  per  cent.  Any  surplus  over  the  actual 
requirements  of  the  export  company  are  to  be  rebated  to 
the  different  companies,  the  products  of  which  are  sold.  As 
a  matter  of  fact  the  commission  is  fixed  so  that  it  meets  the 
operating  expenses  of  the  company.  The  advantage  to  the 
Steel  Corporation  of  the  selling  company  is  that  the  foreign 
business  is  handled  as  a  unit  and  this  is  a  matter  of  funda- 
mental importance  in  the  export  trade.     See  pp.  222-224. 

Cost  of  Production.  —  In  Part  II  of  the  Report  of  the  Com- 
missioner of  Corporations,  the  cost  of  production  of  steel  is 
considered.  Since  this  is  the  most  elaborate  available  inves- 
tigation of  cost  of  production  of  a  great  fundamental  article, 
and  especially  since.it  contains  comparisons  of  the  cost  of  the 
large  and  small  companies  engaged  in  the  business,  the  sum- 
mary of  results  is  reproduced. 

"Certain  salient  points  are  brought  out  by  this  investiga- 

1  Investigation  U.S.  Steel  Corporation,  No.  57,  p.  5135. 

2  Ibid.,  53,  Part  I,  pp.  3691-1695. 


ILLUSTRATIONS   OF  CONCENTRATION      121 

tion  of  costs.  These  points  will  be  discussed  in  detail,  but 
for  convenience  are  here  stated  in  summary  form,  as  follows  :  — 

"  1.  That  cost  statements  for  iron  and  steel  products  vary 
greatly  on  account  of  differences  in  scope  of  operations  and  in 
legal  organization  and  accounting  methods  of  different  com- 
panies. Therefore,  the  statement  and  use  of  such  cost  data 
require  the  most  careful  discrimination. 

"2.  That  the  'book  costs'  of  highly  integrated  concerns 
(that  is,  those  companies  which  link  up  under  one  control 
successive  stages  of  production  of  materials  and  finished  com- 
modities) are  not  net  costs,  because  they  include  large  items 
of  intermediate  profit.  These  profits  occur  as  the  materials 
pass  from  one  stage  of  production  to  another,  because  these 
materials  are  transferred  from  one  department  or  subsidiary 
to  another  at  market  prices  or  at  arbitrary  '  transfer '  prices, 
instead  of  at  cost. 

''3.  That  the  average  costs  differed  greatly,  according  as 
such  intermediate  profits  were  included  or  excluded,  is  shown 
by  Table  34. 


Table    34.    Costs  of  Various  Products,  including  Intermbdlatb 

Profits 


Products 

Cost  Including 

ALL  Intermediate 

Profits 

Cost  Excluding 

Intermediate 

Transfer  Profits 

ON  Materials  ' 

Lake  ore 

Bessemer  pig  iron 

Large  Bessemer  billets     .     .     . 
Bessemer  standard  rails  .     .     . 

$2.64 
13.89 
20.11 
21.27 

2 

$12.10 
17.90 
18.80 

"  The  above  are  average  costs  for  companies  having  a  very 
large  proportion  of  the  total  production  in  the  United  States 
for  the  five  years  1902  to  1906. 

"  4.  That  if  all  these  companies  are  divided  into  two  groups, 
large   highly   integrated   companies,    and   small   companies 

•  This  cost  does  not  exclude,  however,  transportation  profits,  which  are 
considerable  in  amount  for  the  Steel  Corporation,  as  explained  later. 

*  No  difference  except  for  a  trifling  amount  of  intercompany  royalty. 


122 


CONCENTRATION  AND  CONTROL 


which  generally  were  not  well  integrated,  the  average  costs 
of  the  two  groups  differed  decidedly.  These  differences  were 
more  marked  when  intermediate  profits  were  excluded.  The 
facts  are  shown  by  Table  35. 

Table  35.     Comparative  Costs  of  Several   Products   in   Large   and 
Small  Companies 


Products 

Costs  Including 

All  Intermediate 

Profits 

Costs  Excludinq 

Intermediate 

Transfer  Profit 

ON  Materials* 

Large 
com- 
panies 

Small 
com- 
panies 

Large 
com- 
panies 

Small 
com- 
panies 

Lake  ore 

$2.67 

$2.49 
14.27 
22.54 

2 

$11.93 
17.56 
18.80 

2 

Bessemer  pig  iron 

Large  Bessemer  billets    .... 
Bessemer  standard  rails .... 

13.86 
19.89 
21.27 

$14.21 
21.69 

"  These  differences  between  the  two  groups  are,  of  course, 
largely  due  to  the  fact  that  the  more  steps  in  production  con- 
trolled by  one  concern  the  more  intermediate  profits  go  to  that 
concern,  instead  of  being  paid  to  outsiders.  Accordingly, 
when  intermediate  profits  are  excluded,  the  net  cost  for  an  in- 
tegrated concern  is  less  than  for  one  not  so  highly  integrated. 
It  should  be  observed  that  the  above  figures  show  costs  ex- 
clusive of  transfer  profits  on  materials,  and  not  exclusive  of 
transportation  profits.  Such  transportation  profits  are  earned 
by  certain  large  companies,  and  above  all  by  the  Steel  Cor- 
poration 

"  5.  That  while  highly  integrated  concerns  have  a  lower 
net  cost  than  non-integrated  concerns,  and  therefore  a  higher 
margin  (not  rate)  of  profit  between  costs  and  prices;  yet, 
on  the  other  hand,  being  so  integrated,  they  have  a  larger  in- 
vestment to  be  covered  by  this  margin  of  profit  over  net  cost. 

"  6.  That  the  costs  for  this  period  (1902  to  1906,  inclusive) 
are  substantially  representative  of  present  conditions.     This 

1  This  cost  does  not  exclude,  however,  transportation  profits,  which  are 
considerable  in  amount  for  the  Steel  Corporation,  as  explained  later. 
*  No  difference  except  for  a  trifling  amount  of  intercompany  royalty. 


ILLUSTRATIONS  OF  CONCENTRATION      123 


is  shown  by  a  comparison  of  costs  for  a  number  of  important 
selected  plants  for  several  products  from  1902  to  1906, 
inclusive,  and  for  1910. 

"  7.  That  the  United  States  Steel  Corporation  has  a 
special  advantage  in  cost  of  production  on  account  of  its 
complete  integration,  particularly  in  producing  all  the  ore 
and  coke  it  uses,  and  in  having  railroads  for  ore  transpor- 
tation, which  branches  of  its  business  yield  great  profits. 
The  costs  of  the  Steel  Corporation  are  especially  reduced  if 
these  intermediate  profits  are  excluded,  as  is  shown  by 
Table  36. 

Table   36.      Comparison   between    Book    and    Integrated    Costs    of 
Several  Products  for  the  United  States  Steel  Corpor-ation 


Integrated  Cost 

Excluding  Inter- 

Products 

Book  Cost 

coMP.vNT  Profits 

ON  Materials  and 

Transportation 

Lake  ore 

$2.88 

S2.40 

Bessemer  pig  iron     .... 

14.39 

10.21 

Bessemer  standard  rails     .     . 

21.53 

16.67 

In  considering  these  integration  costs  of  the  Steel  Corpora- 
tion, the  much  more  extensive  and  diversified  investment 
of  that  company  should  also  be  taken  account  of. 

"  8.  That  the  indicated  investment  per  ton  of  product  for 
Bessemer  steel  rails  for  the  period  1902  to  1906,  taking 
conditions  of  business  then  prevailing,  ranged  from  $80  to 
Soo  per  ton  of  rails.  On  the  basis  of  a  price  of  S28  per  ton 
for  rails  the  profit  for  all  companies  whose  costs  (excluding 
transfer  profits  only)  would  be  from  11  to  17  per  cent  on  the 
investment. 

"  9.  That  the  prices  of  lake  ore  have  been  kept  for  many 
years  at  an  unreasonably  high  level  compared  ^^'ith  the  cost 
of  production  and  the  cost  of  the  investment  in  the  produc- 
ing ore  properties.  Consequently,  integrated  concerns, 
transferring  such  ore  to  the  pig-iron  producing  departments 
of  the  business  at  those  high  prices,  necessarily  show  an 


124 


CONCENTRATION  AND  CONTROL 


unduly  high  book  cost  for  pig  iron  and  for  various  steel 
products  made  from  pig  iron.  ' 

"  10.  That  this  policy  in  regard  to  ore  prices  has  two 
important  results.  For  companies  selling  ore  it  tends  to 
make  renumerative  the  investment  in  vast  ore  reserves  which 
are  not  at  present  utilized,  and  to  unduly  enhance  the  value 
of  such  properties.  It  also  tends  to  make  the  cost  of  iron  ore 
excessively  high  to  companies  which  must  purchase  it  in  the 
open  market,  and  thus  prevents  them  from  becoming  effective 
competitors  in  pig  iron  or  in  steel  products  made  therefrom." 

In  the  above  statements  and  what  is  to  follow  the  large 
companies  are  interpreted  to  include  the  following :  — 

1.  The  United  States  Steel  Corporation,  total  capitaliza- 
tion,  $1,402,846,817. 

2.  The  Lackawanna  Steel  Company,  common  stock 
$60,000,000,  preferred  stock  $10,000,000,  bonds  $75,412,000, 
total  capitaHzation  $145,412,000. 

3.  Jones  and  Laughlin  Steel  Company,  stock  $30,000,000, 
bonds  $24,487,000,  total  capitalization  $54,487,000. 


Table  37.  Avebage  Book  Cost  per  Gross  Ton  of  Lake  Ore  at 
Lower  Lake  Ports,  Excluding  Intercompany  Royalty  and  Dis- 
tinguishing Large  and  Small  Companies,  1902-1906 


Items  op  Cost 

Labor  .  .  . 
Other  operating 
Royalty   .     .     . 

Mine  cost 
Rail  freight 
Lake  freight 

Lower  Lake  cost 
General      expense, 

depreciation,  and 

taxes    .... 

Total  cost  at 
lower  Lake 
ports.     .     .     . 


All  Companies 
(106,268,728  tons) 

$0.45 
.37 
.23 


$1.05 
.67 
.74 

$2.46 


.16 


$2.62 


Large  Companies 
(84,920,942  tons) 

$0.44 
.38 
.23 

$1.05 
.69 
.74 

$2.48 


.16 


52.64 


Small  Companies 
(21,347,786  tons) 

$0.50 

.34 

.21 
$1.05 

.58 
.74 

$2.37 


.12 


$2.49 


ILLUSTRATIONS   OF  CONCENTRATION      125 


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126 


CONCENTRATION   AND  CONTROL 


4.  The  Republic  Iron  and  Steel  Company,  common  stock 
$27,171,000,  preferred  stock  $25,000,000,  bonds  $18,439,500, 
total  capitaHzation  $70,630,000. 

5.  Cambria  Steel  Company,  stock  $45,000,000,  iron 
company  stock  $8,468,000,  bonds  $6,000,000,  total  capitali- 
zation $59,468,000. 

For  the  years  1902  to  1906,  the  book  costs,  the  transfer 
profits,  and  relative  costs  of  the  large  and  small  companies 
are  given  for  a  number  of  products  in  the  preceding  tables. 
The  data  used  includes  only  the  Buffalo  plant  of  the  Lack- 
awanna and  only  the  Johnstown  plant  of  the  Cambria. 

The  costs  of  steel  for  the  years  1902-1906  above  considered 
do  not  differ  greatly  from  those  less  thoroughly  investigated 
for  later  years ;  this  is  shown  by  Table  39. 

Table  39.  Comparison  of  Average  Book  Cost  per  Gross  Ton  of  Lake 
Ore  at  Lower  Lake  Ports  for  1902-1906,  Inclusive,  with  1907-1910, 
Inclusive,  for  the  Steel  Corporation  and  two  other  Large  Com- 
panies. 


Items  of  Cost 

1902-1906 

(88,082,551 

tons) 

1907-19101 

(88,833,156 

tons) 

Items  of  Cost 

1902-1906 

(88,082,551 

tons) 

1907-19101 

(88,833,156 

tons) 

Labor  .     .     . 
Other  mining 

$0.43 
.21 

.03 
.13 

.25 

$0.35 
.20 

.11 
.13 

.29 

Rail  freight . 
Lake  freight 
Cost  at  lower 

Lake  ports 
General 

charges     . 

Total  book 
cost      .     . 

$0.70 
.74 

$0.74 
.72 

Stripping  and 
develop- 
ment    .     . 

Depreciation 

$2.49 
.09 

$2.54 
.16 

Royalty    .    . 

$2.58 

Cost  at  mine  . 

$1.05 

$1.08 

$2.70 

The  comparisons  of  different  years  for  Bessemer  pig  iron 
and  for  Bessemer  rails  are  shown  by  the  following  tables :  — 

*  For  1910  includes  the  costs  of  the  Steel  Corporation  only. 


ILLUSTRATIONS  OF  CONCENTRATION      127 


Table  40.  Comparison  of  Book  Cost  per  Gross  Ton  of  Bessemer  Pig 
Iron  at  Three  Furnace  Plants  of  the  Steel  Corporation  fob  1902- 
1906  WITH  1910 


Items  of  Cost 

1902-1906 
(13,051,404  tons) 

1910 
(2,668,230  tons) 

Net  metallic  mixture 

Coke 

$7.39 

4.05 

.40 

.67 

.73 

$8.77 
3.94 

T-imestone 

Labor 

Other  operating 

.40 

.48 
.431 

Furnace  cost  ^ 

$13.24 

$14.02 

Table  41.  Comparison  of  Book  Cost  per  Gross  Ton  of  Heavy  Besse- 
mer Rails  at  Two  Plants  of  the  Steel  Corporation  for  1902-1906 
WITH  1910 


Items  of  Cost 


Ingots  .  .  . 
Labor  .  .  . 
Fuel  .... 
Other  operating 
"Works  cost  2 


$18.99 


1902-1906 

1910 

(5,944,409  tons) 

(923,651  tons) 

$16.94 

$17.86 

1.01 

1.14 

.10 

.17 

.94 

1.06 

$20.23 


For  1910  the  book,  intercompany  profits,  and  integration 
costs  for  some  of  the  principal  products  of  the  Steel  Corpora- 
tion are  shown  by  the  following  tables :  — 


1  The  items  covered  in  this  figure  show  a  lower  aggregate  sum  in  1910  than 
for  the  previous  period  chiefly  on  account  of  credits  for  gas  used  in  other  de- 
partments of  the  works. 

2  This  does  not  include  any  allowance  for  "additional  costs"  shown  on 
profit  and  loss  accounts. 


128 


CONCENTRATION  AND  CONTROL 


Table  42.  Steel  Corporation's  Furnace  Cost  per  Gross  Ton  of 
Bessemer  Piq  Iron,  as  shown  by  Producino  Subcompanies'  Cost 
Sheets,  Approximate  Intercompany  Profits  included  therein,  and 
Integr-ition  Furnace  Cost,  as  shown  by  the  Records  of  the  Corpo- 
ration, FOR  1910  (6,269,534  tons) 


Items 

Company  or 
Book  Cost 

Intercompany 
Profit  (approxi- 
mately) 

Integration  Cost 
(exclusive  op 

ANY  Return  to 
Investment  or  any 

Anterior  Stage 
OP  Production  or 
Transportation  ) 

Net  metallic  mix- 
tm-e      .... 

Coke 

Limestone    .     .     . 
Labor      .... 
Other  operating    . 

$8.63 

3.79 

.42 

.55 

.501 

$3.68 
.49 
.01 

$4.95 

3.30 

.41 

.55 

.50 

2 

Furnace  cost '   . 

$13.89 

$4.18 

$9.71 

Table  43.  Steel  Corporation's  Mill  Cost  per  Gross  Ton  of  Heavy 
Standard  Bessemer  Rails,  as  shown  by  Producing  Companies'  Cost 
Sheets,  Approximate  Intercompany  Profits  included  therein,  and 
Integration  Mill  Cost,  as  shown  by  the  Records  of  the  Corpo- 
ration, FOR  1910  (923,651  tons) 


Items  of  Cost 

Company  or 
Book  Cost 

Intercompany 
Profit  (approxi- 
mate) 

Integration  Cost 
(exclusive  op 

ANY  Return  to 
Investment  on  any 

Anterior  Stage 
OP  Production  or 
Transportation) 

Ingots      .... 
Labor      .... 
Other  operating     . 

$17.86 
1.14 
1.23 

$4.83 

$13.03 
1.14 
1.20 

.03^ 

Mill  cost  3     .     . 

$20.23 

$4.86 

$15.37 

1  The  amount  of  this  item  was  $0.69  before  deducting  credit  for  furnace 
gas  used  in  other  department,  namely,  $0.19. 

2  Intercompany  profits  $0,002  and  losses  $0,002. 

'This  does  not  include  any  allowance  for  "additional  costs"  shown  on 
the  profit  and  loss  account. 

*  In  fuel,  steam,  materials,  and  provision  for  rolls. 


ILLUSTRATIONS   OF  CONCENTRATION      129 


Table  44.  Steel  Corporation's  Mill  Cost  per  Gross  Ton  of  Heavy 
Open  Hearth  Rails  at  Northern  and  Southern  Plants,  as  shown 
BY  Producing  Compaj^es'  Books,  Approximate  Intercompany 
Profits  included  therein,  and  Integration  Mill  Cost,  as  shown 
BY  the  Records  of  the  Corporation,  for  1910 


Northern  (530,955  tons) 

Integration 
Cost  (exclu- 
sive OF  ANT 
Return  to 
Investment  or 
ANY  Anterior 
Stage  op  Pro- 
duction OR 
Transporta- 
tion 

Southern 
(323,061  tons) 

Items  op  Cost 

Company  or 
Book  Cost 

Intercompany 

Profit 
(approximate) 

Company  or 

Book  Cost 

(which  does  not 

include  any 

intermediate 

profit) 

Ingots     .     .     . 
Labor     .     .     . 
Other  operating 

$18.37 
1.19 
1.35 

$3.54 

$14.83 
1.19 
1.33 

$14.86 
1.72 
2.66 

.02 

Mill  cost  1     . 

$20.91 

$3.56 

$17.35 

$19.24 

The  value  of  iron  ore.  —  The   iron  ore   holdings  of  the 
United  States  Steel  Corporation  are  very  important  for  the 
future.     Excluding   the   Hill   ore   leases,  which   are   to   be 
dropped  in  1915,  the  United  States  Steel  Corporation  con- 
trols 60  per  cent  of  the  available  Lake  Superior    ores  or 
about  800,000,000  tons.     The  total  holdings  of  the  corpora- 
tion are  placed  at  1,200,000,000  to  1,500,000,000  tons.     The  Amount  of 
author  is  aware  that  these  figures  are  lower  than  those  of  or^poQ.'^^ 
others,  but  they  are  based  upon  careful  estimate  from  the  trolled, 
most  rehable  original  sources  of   information.     The  Steel 
Corporation  in  Mimiesota  owns  railroads  from  the  ore  fields 
to  the  mines,  and  also  o\\tis  ore  roads  from  the  Lake  Erie 
to   the   Pittsburg   district.     Further,  it   owns  the    boats  it 
uses  on  the  lakes.     It  is  thus  in  a  commanding  position  in 
resources. 

The  ore  is  the  fundamental  resource  upon  which  rests  the 
entire  steel  industry.  Therefore  the  question  of  ore  costs 
is  one  of  paramount  importance.  For  the  year  1902  to  1906 
these  are  shown  by  the  following  table :  — 

•  This  does  not  include  any  allowance  for  additional  costs  shown  on  the 
profit  and  loss  accounts. 


130 


CONCENTRATION  AND  CONTROL 


Table  45.    Average  Costs,  Prices,  and  Profits  on  Lake  Ore,  Per 
Gross  Ton,  by  Years,  1902-1906 


Profits 
on  ore. 


Ore  the 

basic 
resource. 


Year 

Tonnage 

Cost  per 
Ton 

Price  per 
Ton 

Profit  per 
Ton 

1902  .... 

1903  .... 

1904  .... 

1905  .... 

1906  .... 

20,111,011 
17,627,423 
16,555,393 
26,093,788 
29,036,426 

$2.77 
2.70 
2.70 
2.58 
2.64 

$3.34 

3.57 
3.06 
3.18 
3.47 

$0.57 

.87 
.36 
.60 
.83 

1902-1906  .  . 

109,424,041 

S2.67 

$3.33 

$0.66 

As  we  have  seen,  the  Commissioner  of  Corporations  com- 
puted the  value  of  the  ores  when  the  organization  was 
formed  at  $100,000,000;  at  the  close  of  1910,  he  placed 
the  total  investment  in  ores  at  about  $134,000,000.  This 
makes  a  capital  account  of  $7.50  to  $7.55  per  ton  of  pro- 
duction. On  this  basis  a  projfit  of  66  cents  per  ton  would 
be  equivalent  to  about  9  per  cent.  The  Commissioner 
regards  this  valuation  as  excessive.  He  thinks  that  on  the 
basis  of  carrying  an  ore  reserve  of  from  thirty  to  thirty- 
five  years,  the  amount  invested  per  ton  of  ore  probably 
would  be  less  than  $5  and  that  a  profit  of  66  cents  per  ton 
on  the  ore  is  too  large  by  at  least  25  cents. 

In  this  matter,  the  question  may  well  be  raised  whether 
the  Commissioner  of  Corporations  has  not  overlooked  one  very 
important  factor.  In  order  to  justify  the  vast  investments 
of  the  United  States  Steel  Corporation  in  the  improvement 
of  the  mines,  development  of  transportation,  and  the  con- 
struction of  the  great  mills,  the  industry  must  have  a  consid- 
erable future.  If  the  Steel  Corporation  owns  only  enough 
ores  to  carry  on  its  business  for  thirty  years,  it  must  not  only 
provide  for  current  depreciation,  but  the  entire  capital 
account  must  be  written  off  before  the  end  of  that  period. 
When  the  ores  are  exhausted,  the  entire  capital  outlay  is 
valueless. 

For  the  larger  part  of  the  investment  of  the  Steel  Corpora- 
tion the  situation  is  similar  to  that  in  a  mine.     It  is  not  only 


ILLUSTRATIONS   OF  CONCENTRATION      131 

necessary  to  provide  for  the  outlay  and  improvements  at  the 
mine,  but  it  is  necessary  by  the  dividends  to  write  off  the 
entire  capital  account  by  the  time  the  ore  deposit  is  exhausted. 

It  may,  however,  be  said  that  only  the  high  grade  ores  are 
now  considered  in  the  estimated  resources  and  that  the  cor- 
poration owns  great  reserves  of  low  grade  ores,  which  will 
enable  the  company  to  carry  on  its  business  when  the  high 
grade  ores  are  exhausted.  This  is  undoubtedly  true;  but 
if  lower  grade  ores  are  used,  those  from  35  to  45  per  cent 
metaUic  iron,  the  cost  of  manufacture  will  be  greatly  in- 
creased ;  and  if  this  be  so,  it  would  be  reasonable  to  allow 
much  more  than  the  profit  of  an  ordinary  manufacturing 
business  for  the  rich  ore  from  the  mines.  Until  this  factor 
is  taken  into  account  it  cannot  be  said  what  profit  should 
be  allowed  to  the  ores. 

Fundamental  natural  resources,  limited  in  quantity,  have 
an  exceptional  value  because  of  their  early  exhaustibility ; 
and  methods  of  computation  based  upon  the  hypothesis  that 
illimitable  quantities  may  be  acquired,  as  convenient,  cannot 
but  lead  to  fallacious  results.     The  extremely  limited  quan-  High  val- 
tity  of  knoTVTi  high  grade  iron  ores,  as  compared  with  the  cer-  ^^^^°^  °^ 
tain  needs  of  this  century,  justify  a  corporation  having  the  justified, 
great  manufacturing  and  transportation   properties  of  the 
United  States  Steel  Corporation  in  acquiring  ore  reserves  as 
far  ahead  as  they  can  be  obtained  at  reasonable  figures,  and 
after  obtaining  them  in  placing  a  high  value  upon  them. 

The  above  reasoning  is  fully  confirmed  by  the  rapid  in- 
crease in  the  assessed  valuation  of  the  Lake  Superior  Iron 
lands.  In  1906  the  assessed  value  of  the  iron-bearing  lands 
of  Minnesota  was  $64,486,409 ;  in  1910  it  was  $224,669,845, 
or  nearly  four  times  as  much.  This  assessment  was  made 
upon  the  basis  of  forty  per  cent  of  real  value ;  therefore  the 
value  of  the  iron  ores  of  Minnesota  for  1910  was  not  less 
than  $561,674,612.1  Of  this  ore,  excluding  the  ores  of  the 
Hill  leases,  the  United  States  Steel  Corporation  owns  or 
controls  sixty  per  cent.  According  to  these  figures  the  value 
of  the  ores   controlled   by   the    corporation   in   ]\Iinnesota 

1  Iron  Ore  Manual,  Lake  Superior  District,  1911.    Rukard  Hurd,  p.  24. 


132    CONCENTRATION  AND  CONTROL 

would  be  $337,004,767.  In  1911  the  ores  of  the  corporation 
in  Michigan,  on  the  theory  of  full  valuation  but  as  a  mat- 
ter of  fact  below  the  value,  were  assessed  at  $42,645,000.^ 
Therefore  the  ores  in  Michigan  and  Minnesota  controlled  by 
the  corporation  on  the  basis  of  assessment  have  a  value  of 
not  less  than  $379,649,767,  or  nearly  three  times  the  esti- 
mate of  $134,000,000  given  by  the  Commissioner  of  Cor- 
porations. 

As  further  evidence  of  the  soundness  of  the  above  position 
may  be  cited  the  rising  price  of  timber.  It  is  pointed  out 
(pp.  159-160)  that  good  timber,  well  located,  during  the  past 
twenty  years,  has  increased  in  value  from  six  to  fifty  fold ;  and 
that  the  larger  part  of  this  increase  has  occured  during  the  sec- 
ond half  of  this  period.  Much  of  the  increase  is  unquestion- 
ably due  to  the  limited  quantity  of  this  resource;  although 
it  is  true  that  a  part  of  it  is  due  to  the  consolidation  of  hold- 
ings. The  existing  timber  will  be  likely  to  meet  the  needs  of 
the  nation  as  long  as  the  discovered  high  grade  iron  ore ;  and 
there  is  this  difference:  the  timber  is  renewable,  indeed,  is 
being  renewed  one  third  as  fast  as  it  is  cut,  whereas  the  iron 
ore  cannot  be  increased  by  a  ton  through  any  effort  of  man. 
It  would  seem  that  the  fortunate  owners  of  high  grade  iron 
ore  are  justified  in  increasing  its  valuation  at  least  as  rapidly 
as  the  owners  of  timber. 

Practices  of  the  Corporation.  —  Regarding  methods  of  con- 
solidation, the  United  States  Steel  Corporation  illustrates 
only  a  single  phase  of  the  process.  Before  this  organization 
was  formed,  the  trust  had  been  declared  to  be  unlawful,  and 
consequently  the  steel  company  became  a  holding  company 
for  all  of  the  stock  of  its  subordinate  companies ;  and  in  turn 
each  of  these  subordinate  companies  is  to  a  greater  or  less 
extent  a  holding  company  of  subsidiary  companies.  As  we 
have  already  seen,  the  Carnegie  Company  of  New  Jersey  was 
strictly  a  holding  company.  The  dividends  of  the  sub- 
sidiary companies,  the  stock  of  which  is  owned,  goes  to  the 
Steel  Corporation,  and  the  Steel  Corporation  in  turn  declares 
dividends,  it  being  the  only  stock  which  the  public  holds. 
»  InveBtigation  U.  S.  Steel  Corporation,  28,  p.  2020. 


ILLUSTRATIONS  OF  CONCENTRATION      133 

In  the  matter  of  combination  with  other  companies  there 
is  no  charge  that  the  Steel  Corporation,  as  such,  has  entered 
into  a  formal  agreement  to   regulate    prices  and  outputs. 
However,  there  have  been  meetings  of  the  men  engaged  in  Mutual 
the  iron  and  steel  business  of  the  United  States,  representing  g^^'^'^^^r^  g 
nearly  90  per  cent  of  the  total,  in  which  the  entire  situation  of  com- 
has  been  gone  over ;  and  there  has  been  an  informal  under-  p^^^^- 
standing  as  to  spheres  of  influence  and  prices,  under  which, 
while  there  has  been  competition  for  business,  there  has  been 
no  severe  fluctuation  in  price.     In  fact,  steel  rails  have  been 
held  at  $28  per  ton  since  the  time  the  corporation  was  formed.^ 

In  the  complaint  made  by  the  Attorney-General,  petition- 
ing for  the  dissolution  of  the  Steel  Corporation,  it  is  alleged 
that  at  these  meetings,  the  different  corporations  "reached 
a  common  understanding  which  was  followed  under  solemn 
admonition  that  they  were  bound  by  an  obligation  more 
estimable  than  life.  These  meetings  brought  about  the 
maintenance  of  prices.  It  was  understood  by  them  that 
they  were  traveling  together,  and  that  they  were  going  to 
stand  together.  They  understood  and  acted  upon  the  under- 
standing that  a  statement  as  to  what  one  would  do  as  to  prices 
or  output  was  a  promise  and  a  pledge  upon  honor  to  the 
others.  At  the  meeting  of  January  11,  1911,  and  other  meet- 
ings, there  was  a  general  expression  of  opinion  that  prices 
should  be  maintained,  and  in  pursuance  of  this  understanding 
and  agreement  they  were  maintained.  When  an  understand- 
ing was  reached,  individual  declarations  were  made  of  inten- 
tion to  follow  the  movement.  It  was  recognized  that  they 
followed  the  policy  laid  out  by  them  by  the  head  of  the  cor- 
poration. This  meeting  of  January  11,  1911,  was  attended 
by  about  80  representatives  of  iron  and  steel  concerns,  being 
a  large  majority  in  number  and  output  of  such  concerns  in  the 
United  States.  They  understood  that  the  purpose  was  to 
consider  the  prices  of  iron  and  steel,  that  the  consensus  of 
opinion  was  that  the  prices  should  not  be  lowered,  but  that 
they  should  be  maintained,  and  that  by  virtue  of  what  oc- 
curred, they  were  in  honor  bound  to  each  other  to  maintain 
1  Investigation  U.  S.  Steel  Corporation,  57,  pp.  5138-5139. 


134  CONCENTRATION  AND  CONTROL 

them.  In  fact,  they,  in  pursuance  of  this  action,  did  main- 
tain them."  In  the  answer  to  the  complaint,  it  is  denied  that 
at  any  "  time  was  there  any  attempt  to  reach  any  agree- 
ment or  understanding  with  respect  either  to  output  or  to 
prices,  nor  was  anything  said  or  done  which  was  calculated 
or  intended  to  suppress  competition  or  restrain  trade,  and 
there  never  was  nor  is  there  now  any  such  agreement  or 
understanding." 

To  what  extent  the  charges  made  will  be  proved  to  be 
true  is  yet  to  be  seen ;  but  there  can  be  no  doubt  that  since 
the  formation  of  the  United  States  Steel  Corporation,  prices 
have  been  steady  as  never  before  in  the  steel  trade  in  this 
country  when  conditions  of  severe  and  sometimes  destruc- 
tive competition  alternated  with  pools  or  gentlemen's  agree- 
ments. The  regulation  of  prices  appears  to  be  the  chief 
objection  which  has  been  made  against  the  corporation. 
That  the  corporation  has  a  steadying  influence  upon  prices 
is  undoubtedly  true.  Also  it  seems  that  the  profits  of  the 
corporation,  as  given  pp.  117-119,  have  been  excessive.  Fur- 
ther, the  corporation  has  required  unreasonably  long  hours  of 
labor  from  a  part  of  its  force,  and  has  opposed  labor  unions. 
The  Efficiency  of  the  Corporation. — The  economic  advan- 
tages which  have  resulted  from  the  Steel  Corporation  include 
all  of  those  which  have  been  assigned  in  the  general  discus- 
sion as  a  justification  for  concentration.  However,  there 
are  certain  points  in  which  the  concentration  has  led  to  es- 
pecially important  savings.  These  will  be  briefly  mentioned. 
The  complete  integration  of  the  industry  has  given  very 
high  efficiency.  The  company,  owning  its  ore,  coal,  and  lime- 
stone, and  owning  its  transportation  lines,  including  rail- 
Complete  roads  to  and  from  the  lakes  and  the  steamboats  on  the  lakes, 
tion^^^"  ^^^  been  able  to  get  to  its  various  furnaces  the  material 
in  quality  and  quantity  as  desired.  Owning  a  very  wide  va- 
riety of  ores,  the  ores  of  different  qualities  have  been  brought 
to  a  given  furnace  in  such  proportions  as  to  give  the  proper 
mixtures  for  the  particular  grade  of  iron  needed  at  that 
point.  If  for  Bessemer  use,  the  material  is  low  in  phosphorus ; 
if  for  conversion  into  steel  by  the  open  hearth  process,  it  is 


ILLUSTRATIONS   OF   CONCENTRATION      135 

somewhat  higher  in  this  element;  if  for  fomidry  iron,  the 
phosphorus  is  much  higher. 

Since  the  many  milHons  of  tons  of  ore  needed  by  the  cor- 
poration must  go  to  the  lakes  and  down  the  lakes  to  the  docks 
or  to  the  furnaces  during  approximately  seven  months  of  the 
year,  the  advantage  of  control  of  the  transportation  for  the 
ores  has  been  very  great.  Indeed,  it  is  extremely  doubtful 
if,  without  such  control,  it  would  have  been  possible  for  the 
corporation  to  have  retained  the  highest  efficiency. 

Since  the  corporation  has  a  set  of  mills  to  produce  articles 
of  various  kinds  at  the  great  industrial  centers  of  Pittsburg 
and  Chicago,  and  to  a  less  extent  at  many  other  points  from 
Superior  to  Cleveland,  cross  freights  have  been  reduced  to  a 
minimum.  To  illustrate,  the  products  needed  south  and 
west  of  Chicago  are  furnished  by  the  mills  about  that  city. 
As  the  corporation  has  a  large  number  of  plants,  it  has  been 
able  to  specialize  its  mills,  in  many  cases  a  single  mill  giving  Speciaiiza- 
almost  its  entire  energy  to  a  certain  product,  or  if  not  to  a  ^^° 
single  product,  to  a  set  of  similar  products.  This  has  enabled 
the  corporation  to  go  far  in  standardizing  its  goods,  which 
is  a  very  great  source  of  economy.  Bridge  materials  are 
turned  out  in  definite  lengths,  widths,  thicknesses,  and  forms ; 
so  also  iron  rods,  bars,  etc.  These  practices  obviate  frequent 
changes  in  the  rolls. 

The  manufacture  of  iron  and  steel  is  one  which  is  con- 
stantly requiring  scientific  investigations.  The  magnitude 
of  the  corporation  has  enabled  it  to  keep  a  strong  investigat- 
ing department  for  improvements,  mechanical  and  chemical ; 
and  this  department  has  carried  on  extensive  experiments 
which  could  not  have  been  undertaken  by  a  small  company. 
Through  the  investigating  department  many  advances  have  Investi- 
been  made.  Thus  it  has  been  ascertained  that  with  the  ^^J^„„r 
Pennsylvania  coal  a  very  considerable  percentage  of  Illinois 
coal  can  be  mixed  and  a  satisfactory  coke  be  secured  for  the 
manufacture  of  iron.  This  has  markedly  decreased  the  ex- 
penses for  coke  at  the  furnaces  in  the  Chicago  district. 

It  is  sometimes  held  that  the  great  corporation  does  not 
secure  as  efficient  management  of  its  individual  plants  as 


paxtment. 


136 


CONCENTRATION   AND   CONTROL 


Comparison 
of  man- 
agement. 


Costs 
greater  for 
small  com- 
panies. 


smaller  organizations ;  but  this  cannot  be  said  to  be  true  of 
the  Steel  Corporation,  This  is  a  holding  corporation;  the 
ofl&cers  of  the  subsidiary  companies  are  retained,  the  same 
as  before  the  consolidation.  These  officers  have  had  the 
stimulus  to  efficiency,  not  only  of  general  published  results, 
but  of  actual  comparison  of  the  results  of  one  management 
with  another  by  parallel  columns  under  the  strictest  system 
of  cost  accounting.  Indeed,  the  competition  for  efficiency 
between  the  different  subsidiary  companies  of  the  Steel  Cor- 
poration has  been  nothing  short  of  terrific.  However,  before 
the  consolidation,  the  competition  was  of  the  keenest  be- 
tween the  different  mills  of  the  same  class  in  the  Federal 
Steel  and  Carnegie  corporations.  There  is  a  general  belief 
that  the  alertness  of  management  and  the  efficiency  under 
the  Steel  Corporation  has  not  deteriorated  as  compared  with 
the  situation  before  its  formation. 

Relative  Efficiency  of  Large  and  Small  Steel  Companies. — All 
of  the  above  conclusions  rest  upon  quahtative  rather  than  upon 
quantitative  studies.  While  the  report  of  the  Commissioner 
of  Corporations  does  not  give  the  data  to  enable  us  to  make 
a  statistical  statement  regarding  the  economic  advantages  of 
the  Steel  Corporation  as  compared  with  other  companies,  it 
does  furnish  material  to  make  a  comparison  in  this  respect 
between  the  Steel  Corporation  together  with  four  other  large 
concerns  (Lackawanna  Steel  Company,  Jones  and  Laughlin 
Steel  Company,  Republic  Iron  and  Steel  Company,  and  Cam- 
bria Steel  Company),  and  the  small  concerns. 

Tables  37  and  38  (pp.  124-125)  show  that  while  the  cost  of 
ore  at  the  lower  lake  ports  for  the  small  companies  is  somewhat 
less  than  for  the  large  companies,  $2.49  as  compared  with 
$2.64,  that  for  the  manufactured  products  the  cost  is  always 
greater  for  the  small  companies  than  for  the  large  companies ; 
and  this  is  so  whatever  the  basis  of  comparison.  Thus  taking 
book  costs:  Bessemer  pig  iron  costs  the  large  companies 
$13.04  per  ton  as  compared  with  $14.18  for  the  small  com- 
panies, a  difference  of  $1.14;  basic  pig  iron  costs  the  large 
companies  $12.17  as  compared  with  $13.81  for  the  small 
companies,  a  difference  of  $1.64;  large  Bessemer  billets  cost 


ILLUSTRATIONS   OF  CONCENTRATION        137 

the  large  companies  $18.69  as  compared  with  $22.51  for  the 
small  companies,  a  difference  of  $3.82. 

If  transfer  profits  be  included,  even  greater  differences 
appear.  Thus  the  costs  of  Bessemer  pig  iron  on  this  basis  are 
for  the  large  companies  $11.11  per  ton  as  compared  with 
$14.12  for  the  small  companies,  a  difference  of  $3.01 ;  for 
basic  pig  iron  $11.11  for  the  large  companies  as  compared 
with  $13.59  for  the  small  companies,  a  difference  of  $2.48; 
and  for  large  Bessemer  billets,  $16.36  for  the  large  companies 
as  compared  with  $21.66  for  the  small  companies,  a  differ- 
ence of  $5.30. 

In  the  above  statement  the  advantages  which  the  large 
companies  have  in  the  matter  of  transportation  are  included. 
For  the  Steel  Corporation  it  is  estimated  that  the  average 
profits  on  transportation  amounted  to  60  cents  per  ton 
upon  the  ore;  this  would  be  roughly  equivalent  to  $1 
a  ton  on  the  products  above  mentioned.  The  profits  of 
the  Steel  Corporation  on  transportation  were  undoubtedly  Economic 
much  greater  than  those  of  the  other  companies,  and  there-  ™^"*^  °^ 

°  ^  '  large  and 

fore   for  the   average  of   the  four   companies   $1    for   the  small 
profits    of    transportation    are    too    high;    75    cents    may  ^o^p^^^^s. 
perhaps  be  accepted  as  a  rough  approximation.     If   this 
amount  be  subtracted  from  the  excess  profits  of  the  large 
companies,  they  still  have  a  wide  margin  over  the  small 
companies. 

The  above  data  do  not  give  a  basis  upon  which  to  compare 
the  economic  merits  of  the  large  and  small  companies,  since 
in  the  integrated  industry  the  production  of  a  ton  of  steel  in- 
volves a  larger  capital  per  ton  of  output  than  for  the  small 
companies.  The  capital  of  the  small  companies  includes 
only  the  cost  of  mills  to  transform  billets  into  steel  prod- 
ucts, whereas  for  the  larger  companies  much  capital  is  in- 
vested in  the  part  of  the  industry  anterior  to  the  billets. 

Unfortunately  the  report  of  the  commissioner  does  not 
give  the  capital  accounts  of  the  large  and  small  companies, 
nor  determine  the  amount  which  should  go  to  interest  on  this 
account  per  ton  of  product,  and  thus  enable  us  to  ascertain 
the  net  advantage  of  the  larger  company  per  ton  over  the 


138 


CONCENTRATION  AND  CONTROL 


Great  com- 
panies may 
destroy 
small  ones. 


small  company,  nor  even  to  determine  whether  such  net 
advantage  exists. 

However,  the  facts  available  show,  if  ruthless  competi- 
tion were  to  occur  regardless  of  interest  on  capital,  that 
the  large  companies  would  be  able  to  destroy  the  small 
ones;  because  by  eliminating  transfer  costs  the  great  com- 
panies have  their  materials  at  the  final  mills  at  a  lower  rate 
than  the  small  companies.  At  a  figure  for  final  products 
which  would  eliminate  all  profits  for  small  companies,  the 
large  companies  would  still  have  a  profit  on  pig  iron  and 
billets  of  from  $2.48  to  $5.30,  as  shown  by  the  last  column  of 
Table  38.  Thus  the  large  companies,  if  they  were  willing 
to  reduce  profits  below  the  above  amounts  and  pay  a  very 
small  interest  on  capital,  could  compel  competitors  to  close 
up  or  run  at  a  loss. 

The  figures  of  the  commissioner  seem  to  show  beyond 
question  that  if  competition  be  carried  on  without  reference 
to  the  percentage  of  profit  on  the  capital  invested,  the  large 
steel  companies  could  crush  the  smaller  ones. 

Relative  Efficiency  of  the  Large  Steel  Companies.  —  The  very 
interesting  question  as  to  the  relative  strength  of  the  United 
States  Steel  Corporation,  as  compared  with  the  other  four 
companies  reckoned  as  large,  is  not  taken  up  by  the  Commis- 
sioner. Would  a  similar  comparison  of  the  Steel  Corpora- 
tion with  these  companies,  excluding  transfers,  show  a  greater 
profit  per  ton  than  the  other  four  large  companies?  The 
high  integration  of  the  Steel  Corporation  would  seem  to 
render  this  possible.  If  this  be  so,  just  as  the  large  companies 
could  crush  the  small  companies,  so  the  Steel  Corporation 
could  crush  the  other  large  companies,  if  the  competitive 
system  were  pushed  to  the  limit  with  the  aim  of  destroying 
all  competitors. 

This  comparison  raises  the  question  whether  the  con- 
solidation of  the  great  constituent  companies  of  the  United 
States  Steel  Corporation  because  of  that  fact  increased  their 
joint  efficiency ;  that  is  to  say,  could  the  companies  of  the 
size  of  Federal  Steel,  Carnegie  Steel,  and  the  American  Steel 
and  Wire  Company  have  continued  their  business  with  an 


ILLUSTRATIONS  OF  CONCENTRATION      13d 

efficiency  equal  to  that  of  the  Steel  Corporation?    This  is 
the  crux  of  the  question  concerning  the  relation  of  economy 
and  extent  of  consolidation  for  iron  and  steel.     It  is  agreed 
by  all,  that  in  this  industry  an  organization  to  be  highly  Relative 
efficient  must  be  large ;  that  it  is  necessarily  one  of  great  ^  ^^^'^^^ . 
concentration.     Is  a  capitalization  of  from  $50,000,000  to  panies. 
$100,000,000  for  a  steel  corporation  sufficient  to  give  the 
maximum  economy  ?     Some  men  believe  that  the  undoubted 
economies  due  to  complete  integration,  avoidance  of  cross 
freights,  specialization  of  work  in  the  different  mills,  etc., 
enjoyed  by  the  United  States  Steel  Corporation  are  more 
than  compensated  by  deterioration  which  it  is  charged  has 
been  introduced  because  of  the  gigantic  size  of  the  corpora- 
tion.    It  is,  in  short,  asserted  that  magnitude  has  gone  be- 
yond the  stage  giving  increased  efficiency. 

On  the  other  hand,  it  is  held  by  Mr.  Gary,^  Chairman  of 
the  Steel  Corporation,  that  none  of  the  great  independent 
companies  could  hold  their  ground  against  it  if  competition 
was  driven  to  its  final  limit. 

This  view  is  confirmed  from  other  sources.  The  Wall 
Street  Journal  states  that  in  1911  the  net  profits  of  the 
Steel  Corporation  were  close  to  $11  a  ton;  whereas  the 
hightest  profits  of  the  independent  companies  were  approxi- 
mately $7  per  ton;  and  the  average  of  the  independents 
not  much  more  than  $4  per  ton.  These  figures  are  con- 
firmed by  the  elaborate  investigations  of  Mr.  Farquhar  I. 
MacRae  for  the  Congressional  Committee.  It  therefore 
appears  that  if  unrestrained  competition  were  introduced 
into  the  iron  and  steel  industry  it  would  be  possible 
for  the  United  States  Steel  Corporation  to  crush  its  com- 
petitors.2 

To  throw  further  light  upon  this  subject,  it  is  to  be 
hoped  that  the  Commissioner  of  Corporations  will  compare 
the  cost  of  production  of  the  large  steel  companies  among 
themselves    as    he    has    the    larger    companies    with    the 

>  Investigations  U.  S.  Steel  Corporation,  53,  Part  I,  pp.  3690-3691. 
*  See  also  testimony  Chauncy  M.  Button,  Hearings  Senate  Interstate  Com- 
merce Committee,  XIX,  pp.  1672-1699. 


140    CONCENTRATION  AND  CONTROL 

smaller  ones.  Also  it  is  to  be  hoped  that  these  investiga- 
tions will  take  into  account  interest  on  capital  in  order  that 
we  may  have  exact  data  to  base  a  conclusion  concerning  the 
relative  economic  efficiency  of  the  large  independent  organi- 
zations, and  of  these  as  compared  with  the  small  companies. 
Summary  of  Evils.  —  In  conclusion,  the  chief  evils  which 
have  appeared  in  connection  with  the  United  States  Steel 
Corporation  are :  — 

1.  Unparalleled  overcapitalization. 

2.  Large  sums  paid  to  organizers  and  manipulators  at  the 
time  of  the  conversion  of  the  preferred  stock  into  bonds. 

3.  Excessive  prices;  these  have  resulted  in  enormous 
earnings. 

4.  Selling  products  cheaper  abroad  than  at  home. 

Section  4 

THE  AMERICAN   TOBACCO   COMPANY » 

The  tobacco  industry  is  one  of  those  in  which  a  single 
combination  controlled  a  large  percentage  of  the  business  of 
the  United  States  until  the  organization  was  dissolved  by 
order  of  the  Supreme  Court  into  fourteen  companies. 

History  of  Company.  —  The  dominant  corporation  in  the 
tobacco  industry  during  recent  years  has  been  the  American 
Tobacco  Company.  This  company  had  three  great  subsid- 
iary companies,  the  American  Snuff  Company,  the  American 
Cigar  Company,  and  the  British-American  Tobacco  Com- 
pany. All  four  of  these  companies  controlled  a  large  number 
of  subsidiary  companies,  the  total  number  of  companies 
under  the  combination  doing  business  in  the  United  States, 
Porta  Rico,  and  Cuba  being  eighty-six. 

This  group  of  companies  in  1909  controlled  92.7  per  cent 
of  the  cigarette  business  of  the  country,  62  per  cent  of  the  plug 
tobacco,  59.2  per  cent  of  the  smoking  tobacco,  and  in  1901, 

*  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  Industry  : 
Part  I,  Position  of  the  Tobacco  Combination  in  the  Industry ;  Part  II, 
Capitalization,  Investments,  and  Earnings.  Washington,  Government  Print- 
ing Office,  1909,  1911. 


ILLUSTRATIONS   OF   CONCENTRATION      141 

the  first  year  it  entered  the  snuff  business,  80.2  per  cent  Monopo- 
of  the  snuff.     Later  the  American  Tobacco  Company  entered  '^^^l^ 

'■       ''  position. 

the  cigar  business  and  by  1903  it  had  acquired  about  one 
sixth  of  the  cigar  output  of  the  United  States.  The  capi- 
talization of  the  companies  of  the  combination  in  stocks  and 
bonds,  when  reported  upon  in  1909  by  the  Commissioner 
of  Corporations,  was,  without  counting  duphcation  of  stock 
by  interholdings,  $316,346,281. 

The  business  of  the  American  Tobacco  Company  included 
the  manufacture  and  handling  of  chewing  and  smoking 
tobacco,  of  cigarettes  for  domestic  consumption,  and  little 
cigars,  together  with  enterprises  allied  with  the  tobacco  Scope  of 
industry.  The  American  Snuff  Company  confined  its  ^"^"^^^^• 
operations  to  the  manufacture  of  snuff.  The  American  Cigar 
Company,  with  its  subsidiaries,  handled  the  cigar  business 
of  the  combination.  The  British-American  Tobacco  Com- 
pany handled  all  the  foreign  business  of  the  company.  The 
dominating  organization  was  the  American  Tobacco  Com- 
pany, which  held  a  majority  of  the  capital  stock  of  the 
American  Cigar  and  the  British-American  Companies,  and 
over  40  per  cent  of  the  stock  of  the  American  Snuif  Company. 

The  total  number  of  companies  absorbed  in  building  up 
the  combination  was  in  the  neighborhood  of  two    hundred 
and   fifty.     The   organization   went   through   three    stages. 
It    began    with   the    formation    of    the    American    Tobacco  Two  hun- 
Company    in    1890.     This    company,    beginning    with    the  £[t*?^^j^_ 
manufacture    of    cigars    and    cigarettes,  soon  expanded    its  panies 
operations  into  the  plug  tobacco  business.     By  carrying  on  absorbed. 
a  vigorous  war,  the  American  Tobacco  Company  acquired 
a  number  of  its  competitors,  and  in  1898  united  with  the 
strongest  of  the  others  into  the  Continental  Tobacco  Com- 
pany.    Following  this,  in  1900,  came  the  snuff  combination 
under    the  name  of  the  American  Snuff  Company.     This 
presents  the  first  stage  of  combination. 

In  1901  the  Consolidated  Tobacco  Company  was  formed, 
which  took  over  the  Continental  and  American  Tobacco 
Companies,  being  itself  strictly  a  holding  corporation.  As 
a  result  of  a  campaign  of  the  new  combination  to  push  its 


142 


CONCENTRATION  AND  CONTROL 


Stages  of 
develop- 
ment. 


Expansion 
of  stock. 


business  in  Great  Britain,  the  British-American  Tobacco 
Company  was  formed  in  1902  for  the  foreign  tobacco  business 
outside  of  Great  Britain  and  the  United  States. 

After  the  decision  of  the  Supreme  Court  dissolving  the 
Northern  Securities  Company  (see  p.  180),  the  companies 
above  mentioned  were  merged  in  1904  into  one  corporation, 
the  reorganized  American  Tobacco  Company. 

In  the  process  of  growth  of  the  American  Tobacco  Com- 
pany, we  have  illustrated  all  of  the  stages  of  most  of  the  great 
concentrations  of  industry,  with  the  exception  of  pools  and 
trusts,  which  stages  of  development  had  been  gone  through 
before  the  organization  of  the  first  American  Tobacco 
Company,  These  included  the  consolidation  of  numer- 
ous companies  into  a  large  company,  then  control  of 
groups  of  companies  through  holding  companies,  and  finally 
a  single  consolidated  combination,  the  American  Tobacco 
Company. 

Overcapitalization.  —  At  each  step  in  the  development  of 
the  American  Tobacco  Company,  there  was  opportunity  for 
increasing  its  securities,  both  stocks  and  bonds;  and  this 
was  done  at  each  transformation  upon  a  great  scale;  ac- 
crued earnings  and  good  will  were  capitalized  and  common 
stock  was  issued  as  a  bonus.  Each  company  when  taken 
into  a  new  organization  was  treated  most  liberally  in  the 
estimate  of  values,  in  some  cases  the  amount  of  bonds  issued 
being  double  stock  previously  held.  In  1908  the  good  will 
of  the  American  Tobacco  Company  represented  a  capitaliza- 
tion of  $105,000,000;  whereas  its  cash  value  according  to 
the  Bureau  of  Corporations  was  only  about  $39,000,000,  or 
37  per  cent.  Altogether,  the  transformations  resulted  in  the 
enormous  capitalization  mentioned. 

As  illustrating  the  amount  of  the  expansion,  it  may  be 
said  that  the  capital  of  one  of  the  constituent  businesses  of 
the  company  in  1885  was  $250,000.  When  the  American 
Tobacco  Company  was  organized  this  went  in  on  the  basis 
of  $7,500,000  in  stock.  By  1908  the  readjustment  of  this 
amount  had  reached  $22,000,000;  and  cash  dividends  and 
interest  had  amounted  to  $16,900,000.     Thus  an    original 


ILLUSTRATIONS   OF   CONCENTRATION      143 

investment  of  S250,000  had  by  1908  realized  in  stock,  bonds, 
dividends,  and  interest  $39,000,000,  or  one  hundred  fifty-six 
times  the  value  of  the  business  in  1885. 

Illegitimate  Competition.  —  After  the  combination  formed, 
the  methods  of  ruthless  competition  were  used.  Having 
control  of  several  lines  of  business,  when  a  new  line  was 
entered,  there  were  put  upon  the  market  certain  brands 
which  were  sold  either  at  no  profit  or  at  a  loss.  These 
were  called  "fighting  brands."  In  the  case  of  plug  tobacco, 
one  of  these  was  appropriately  called  "Battle  Ax";  another 
was  known  as  the  "Horse  Shoe."  In  order  more  effectively 
to  carry  on  destructive  competition  some  twenty  or  more 
companies  were  secretly  purchased,  and,  while  a  part  of  the 
American  Tobacco  Company,  were  supposed  to  be  independ- 
ent firms.  These  companies  were  used  in  the  campaign  of 
underselling;  and  in  this  way  public  disapproval  of  the 
illegitimate  campaign  was  avoided  by  the  American  Tobacco 
Company.  Exclusive  contracts  were  made  with  sellers,  and 
bonuses  given  for  compliance  with  the  same.  The  business 
of  competitors  was  placed  under  secret  espionage.  The 
methods  of  competition  were  so  fierce  as  often  to  destroy  the 
weaker  competitors.  Others  found  too  strong  to  be  killed 
by  the  illegitimate  methods  of  competition  were  purchased 
from  time  to  time,  usually  at  very  high  prices.  Continuity  in 
the  plans  for  expansion  and  monopoly  was  secured  through 
a  group  comprising  only  about  half  a  dozen  men  who  always 
controlled  the  business  of  the  American  Tobacco  Company, 
the  center  of  the  organizations  and  reorganizations. 

International  Combination.  —  After  the  American  Tobacco 
Company  had  acquired  a  dominant  position  in  the  United 
States,  the  British  market  was  vigorously  entered.  In 
order  to  meet  the  competition  of  the  strong  American  com- 
pany, many  British  companies  united  into  the  Imperial 
Tobacco  Company ;  and  thus  the  forces  of  the  war  were 
equaUzed.  This  led  to  a  mutual  agreement  upon  the  part 
of  the  combinations,  each  to  respect  the  territory  of  the 
other,  leaving  the  British  field  free  to  the  British  Company 
and  the  American  field  to  the  American  Company.     At  the 


144  CONCENTRATION  AND  CONTROL 

same  time  the  two  combinations  united  to  form  an  additional 
company,  the  British-American  Tobacco  Company,  which 
was  to  push  vigorously  the  tobacco  business  in  all  other 
parts  of  the  world,  except  the  United  States  and  Great 
Britain.  Thus  the  formation  of  the  great  combination  in 
America  led  to  a  similar  combination  in  Great  Britain,  and 
also  made  a  step  toward  world  combination. 

Expansion  into  Allied  Businesses.  —  As  is  usual  when  a 
great  combination  is  formed,  the  companies  concerned  went 
into  allied  businesses.  Since  licorice  is  one  of  the  important 
materials  used  in  the  manufacture  of  tobacco,  this  was  one 
of  the  businesses  which  was  entered ;  and  the  American  To- 
bacco Company  obtained  more  than  95  per  cent,  nearly  a 
complete  monopoly,  of  the  licorice  business  of  the  United 
States. 

In  addition  to  acquiring  allied  manufacturing  businesses, 
the  American  Tobacco  Company  had  a  stock  interest,  often 
controlling,  in  the  concerns  of  the  country  which  were  en- 
gaged in  the  distribution  of  tobacco. 

Concentration  of  Manufacture.  —  The  organization  concen- 
trated the  manufacturing  of  tobacco  in  a  limited  number  of 
large  plants,  the  small  plants  which  were  acquired  from  time 
to  time  being  closed.  Also  the  manufacture  of  tobacco  was 
specialized,  a  given  great  factory  devoting  itself  to  one  line 
of  product.  Thus,  while  there  were  two  hundred  and  fifty 
or  more  plants  acquired,  the  main  part  of  the  business  of 
the  company  was  carried  on  in  the  great  plants.  The 
cigarette  and  little  cigar  business  was  conducted  in  nine 
plants;  all  of  the  business  in  plug  and  twist  tobacco  was 
carried  on  in  six  plants,  and  about  seven  eighths  of  this 
amount  in  two  plants.  About  30  per  cent  of  the  business 
was  distributed  among  ten  subsidiary  companies,  of  which 
the  relation  of  eight  with  the  American  Tobacco  Company 
was  kept  a  secret.  Half  of  the  business  of  the  fine-cut 
tobacco  was  done  in  nine  plants  and  the  remainder  in  sub- 
sidiary plants.  The  entire  snuff  business  of  the  company 
was  conducted  in  ten  plants,  four  directly  owned  and  six 
subsidiary.     Thus  through  size  and  specialization  the  com- 


ILLUSTRATIONS   OF  CONCENTRATION       145 

bination  had  a  marked  advantage  over  its  competitors; 
and  still  further  advantage  was  gained  by  the  control  of 
more  efficient  machinery  for  marketing. 

Excessive  Profits.  —  The  profits  of  the  combination  were 
very  large.  After  the  formation  of  the  reorganized  Ameri- 
can Tobacco  Company  in  1904,  the  average  earnings  upon 
actual  investments  to  1908  were  19  per  cent,  or  $31,200,000 
yearly;  and  this  upon  the  basis  of  a  capitalization  of 
$316,000,000,  which  we  have  already  seen  was  reached  by 
several  manipulations,  each  with  great  expansion  of  the 
stock  and  bonds. 

The  combination  was  greatly  assisted  in  securing  these 
enormous  profits  through  changes  in  the  internal  revenues. 
In  1898,  as  a  result  of  the  Spanish  War,  taxes  were  greatly 
increased  upon  tobacco  and  prices  were  raised  accordingly. 
In  1901-1902  this  tax  was  reduced  to  its  former  level ;   but 
by  this  time  the  combination  had  become  sufficiently  power-  War  tax 
ful  to  hold  up  prices,  so  that  practically  all  of  the  advantage  combila- 
of  the  reduction  of  the  tax  on  the  manufactured  tobacco  tion. 
from  twelve  cents  to  six  cents  per  pound  went,  not  to  the 
consumer,    but   to    the    combination,    in   this    way   adding 
many  millions  to  its  income. 

The  enormous  profits  of  the  combination  were  thus  due 
largely  to  the  following  causes :  the  reduction  of  the  Spanish 
war  tax,  the  capitalization  of  the  good  will  of  the  business 
at  each  consolidation  or  reorganization,  putting  in  surplus 
to  increase  the  capital  stock,  exchanging  at  inflated  values 
at  times  of  reorganization,  and  issuing  common  stock  as  a 
bonus. 

These  enormous  earnings  were  derived  from  an  article 
mainly  sold  in  small  packages.  Much  the  greater  propor- 
tion of  the  retail  sales  of  tobacco  is  in  amounts  of  fifty  cents 
or  less;  but  tobacco  is  very  widely  used.  The  American 
Tobacco  Company,  by  adding  a  little  additional  tribute  to 
the  purchases  of  millions  of  people,  has  made  fabulous 
profits. 

According  to  the  Commissioner  of  Corporations  the  rates 
of  profit  obtained  by  independent  concerns  average  much 


146 


CONCENTRATION    AND  CONTROL 


The  limits 
of  tribute. 


Aim  to 

gain 

monopoly. 


lower  than  those  of  the  combination.^  The  average  rate  of 
earnings  of  forty-eight  independent  companies  for  1906 
was  15.9  upon  the  total  tangible  assets ;  whereas,  for  the 
same  year  the  earnings  of  the  American  Tobacco  Company 
were  40.9  of  its  tangible  assets  or  more  than  three  .times 
as  much. 2 

Monopoly  and  Comyetition.  —  Notwithstanding  the  great 
advantage  which  the  American  Tobacco  Company  had 
through  large  plants,  specialization  of  business,  and  control 
of  machinery,  the  competitors  of  the  combination  steadily 
gained  in  their  business ;  and  this  in  spite  of  the  fact  that 
they  were  put  to  great  expense  for  advertising  to  meet  the 
"fighting  brands"  of  the  American  and  illegitimate  com- 
petition through  secret  companies.  This  was  possible 
because  of  the  enormous  profits  which  the  combination  was 
taking.  These  facts  go  to  show  that  even  a  combination  of 
gigantic  size,  controlling  80  per  cent  of  the  business  of  the 
country  along  various  lines,  may  exist,  and  competitors  gain 
upon  it,  if  the  prices  charged  are  very  excessive  and  the 
profits  correspondingly  great.  They  indicate  that  there  is  a 
limit  beyond  which  extortionate  charges  may  not  be  levied. 
If  the  amount  of  tribute  be  made  too  great,  even  fear  of  a 
mighty  combination  will  not  prevent  capital  from  entering 
a  business  in  order  to  share  in  the  great  profits.  Upon  the 
other  hand,  the  facts  clearly  show  that  excessive  prices  may 
be  retained  sufficient  to  give  the  combination  enormous 
profits.  This  is  true  for  the  American  Tobacco  Company, 
even  upon  the  basis  of  the  fictitious  capitalization ;  and  if  we 
consider  the  great  gains  made  by  the  chief  manipulators  of 
the  company  at  the  various  transformations,  the  profits  for 
these  men  are  nothing  short  of  amazing. 

It  is  the  opinion  of  the  Commissioner  of  Corporations  that 
almost  from  the  outset  it  was  the  aim  of  the  American 
Tobacco  Company  to  acquire  monopoly.  This  plan  was 
first  applied  to  one  line  of  business,  the  cigarette  and  little 
cigar;    from   this   it   was   extended   to   plug   tobacco    and 


1  "The  Tobacco  Industry,"  Part  II,  p.  314. 

2  Ibid.,  pp.  326,  328. 


ILLUSTRATIONS   OF  CONCENTRATION       147 

later  to  snuff  and  fine-cut  tobacco.  The  purpose  was  largely 
accomplished  in  these  lines,  since  the  combination  succeeded 
in  getting  four  fifths  of  the  business  of  the  country ;  but  the 
combination  never  accomplished  its  purpose  in  the  cigar 
business,  the  maximum  proportion  gained  in  this  line  being 
about  one  sixth.  The  dissolution  of  the  American  Tobacco 
Company  by  order  of  the  courts  is  discussed  pp.  183-187. 

Summary  of  Evils.  —  The  chief  evils  illustrated  by  the 
American    Tobacco    Company    are :  — 

1.  Overcapitalization,  and  especially  excessive  capitali- 
zation of  good  wdll,  exchanges  at  each  reorganization  at 
inflated  values,  and  giving  common  stock  as  bonus. 

2.  Stock  manipulation.  The  reorganizations  were  made 
in  such  a  manner  as  greatly  to  benefit  those  who  were  on  the 
inside. 

3.  Excessive  prices  due  in  large  measure  to  monopolistic 
position.  The  high  prices  lead  to  enormous  and  unwar- 
ranted earnings. 

4.  The  use  of  secret  companies  to  kill  competitors. 

5.  The  compelling  of  purchasers  to  deal  exclusively  with 
the  American  Tobacco  Company. 

6.  Espionage  of  competitors'  business  vdih  other  unfair 
practices  in  connection  with  the  same. 

Section  5 

THE   AMERICAN   SUGAR   REFINING   COMPANY  i 

Commanding  Position  of  Company.  —  The  initial  organiza- 
tion of  the  sugar  combination  was  the  Sugar  Refineries 
Company.  From  1887  to  1891  this  company  purchased 
refineries  in  various  parts  of  the  country  until  finally  twenty 
refineries  were  controlled.  In  1891  this  organization  incor- 
porated under  the  laws  of  the  state  of  New  Jersey  as  the 
American  Sugar  Refining  Company,  with  a  capital  of 
$50,000,000.    Most  of  the  plants  purchased  were  abandoned, 

1  House  of  Representatives,  62nd  Congress,  2nd  Session.  Report  by  Mr. 
Hardwick  from  the  special  committee  to  investigate  the  American  Sugar 
Refining  Company,  and  others. 


148    CONCENTRATION  AND  CONTROL 

all  the  refining  being  done  in  seven  establishments.  The 
American  was  engaged  in  the  refining  of  cane  sugar.  When 
organized  it  controlled  75  per  cent  of  that  class  of  business. 
Shortly  after  the  organization  of  the  New  Jersey  corporation 
the  Spreckles  Company  of  the  West  united  with  the  American, 
so  that  as  early  as  1892  the  combination  controlled  90  per 
cent  of  the  sugar  refining  business  of  the  country.  From 
this  time  until  1898  the  company  had  practical  monopoly 
of  the  refining  business  in  the  United  States.  In  1898 
Arbuckle  Brothers  entered  the  refining  business,  and  for  a 
time  there  was  fierce  competition;  but  the  two  companies 
got  together  in  1903  and  the  war  ended. 

Beginning  with  1901  the  American  Company  began  to 
acquire  an  interest  in  the  beet  sugar  companies  and  soon 
secured  a  large  interest  in  that  line  of  business. 

In  1900  the  American  Sugar  Company  refined  67  per  cent 
of  the  sugar.  This  proportion  declined,  until,  in  1910,  it 
refined  only  42  per  cent.  But  the  company  also  owned 
stock  or  controlled  a  number  of  so-called  independent  com- 
panies. As  a  result,  it  is  calculated  that  of  the  cane  sugar 
refining  business  and  beet  sugar  manufacture  of  the  United 
States  in  that  year  the  American  Sugar  Refining  Company 
controlled  62  per  cent. 

Increase  in  Margins.  —  During  the  years  in  which  the 
American  Company  has  had  approach  to  monopoly  the 
margins  for  refining  have  been  increased.  During  the  four 
years  prior  to  the  formation  of  the  Sugar  Refinery  Com- 
pany, competition  was  severe  and  the  average  margin  was 
79.6  cents  per  hundred  pounds.  As  soon  as  the  refiners 
became  well  organized  the  margin  was  raised  to  $1.25.  At 
the  time  of  the  competition  between  the  Havemeyer,  the 
Spreckles,  and  the  Arbuckle  interests,  it  fell  to  between  70 
and  75  cents,  and  in  1899  was  as  low  as  50  cents.  After 
the  Arbuckle  war  closed,  in  1901,  it  rose  to  SI ;  but  since 
1905  has  gradually  declined,  and  while  variable  from  time 
to  time,  in  1911  it  was  89.2  cents. 

Price  of  Raw  Material.  - —  There  is  complaint  on  the  part  of 
the  sugar  planters  of  Louisiana  that  the  price  for  cane  raw 


ILLUSTRATIONS   OF  CONCENTRATION       149 

sugar  has  been  unduly  depressed,  being  made  15  cents  per 
hundred  pounds  lower  at  New  Orleans  than  at  New  York; 
but  doubtless  at  least  a  part  of  this  difference  is  justified  on 
the  ground  of  the  transportational  advantages  of  New  York. 
The  sugar  planters  of  the  Hawaiian  Islands,  Porto  Rico,  and 
the  Phihppines  are  united  and  have  been  able  to  protect 
themselves.  Similarly  the  prices  paid  to  the  farmers  for 
beets  have  been  satisfactory,  there  being  no  evidence  of  a 
combination  between  manufacturers  to  depress  prices. 

Overcapitalization.  —  The  Sugar  Refining  Company  when 
organized  with  a  stock  of  $50,000,000  was  greatly  over- 
capitalized. As  other  companies  were  united  they  were 
taken  in  at  excessive  values,  and  this  led  to  a  capitaliza- 
tion of  $90,000,000  by  1901.  At  least  50  per  cent  of  the 
common  stock  is  regarded  as  water,  of  which  the  insiders  and 
promoters  got  a  large  portion. 

Excessive  Profits.  —  The  preferred  stock  has  paid  7  per 
cent  and  the  common  9.4  per  cent,  an  average  of  8.2  for  the 
whole  stock  issue,  or  at  least  15  or  16  per  cent  on  a  fair  val- 
uation of  the  properties  and  business.  The  promoters  of 
the  organization  and  the  manipulators  have,  with  the  excep- 
tion of  a  single  firm,  sold  these  watered  stocks  to  the  public 
at  a  price  of  from  $120  to  $130  per  share,  so  that  at  the 
present  time  a  large  part  of  the  stock  originally  owned  by 
fifty  men  is  now  in  the  possession  of  nineteen  thousand  people 
scattered  all  over  the  country,  but  largely  located  in  New 
England  and  the  North  Atlantic  states;  of  these  nineteen 
thousand,  ten  thousand  are  women. 

Evils  Illustrated.  —  The  American  Sugar  Refining  Com- 
pany has  engaged  in  exceptionally  objectionable  practices. 

(1)  Through  collusion  of  the  officers  of  the  sugar  com- 
pany and  the  officers  of  the  government,  duties  were  paid 
upon  the  basis  of  short  weights.  There  were  recovered 
from  the  company  on  account  of  these  weighing  frauds 
$1,835,486.  The  secretary -treasurer  of  the  American  Sugar 
Refining  Company  and  the  general  manager  of  the  Brooklyn 
Refinery  were  convicted  for  participation  in  them. 

(2)  In  the  investigation  of  the  weighing  frauds  illegalities 


150    CONCENTRATION  AND  CONTROL 

were  also  discovered  under  which  the  company  had  re- 
ceived drawbacks  for  exported  syrup  in  excess  of  the  amount 
justly  due.  The  company  settled  the  case  with  the  govern- 
ment by  the  payment  of  ,^700,000. 

(3)  The  company  has  been  convicted  of  taking  rebates 
from  a  number  of  railways;  and  in  consequence  of  those 
practices  has  been  fined  sums  aggragating  $98,000.^ 

(4)  In  addition  to  the  above,  the  Congressional  Com- 
mittee finds  strikingly  developed  several  evils  which  they 
regard  as  characteristic  of  combinations.  These  are  as 
follows :  — 

"a.  Original  overcapitalization  of  great  industrial  corpo- 
rations resulting  in  increased  cost  of  production,  if  a  profit 
is  to  be  made  (as  is  always  insisted  upon)  on  the  inflated 
capitalization,  and  higher  prices  of  the  product  to  the  con- 
suming public. 

"  h.  The  temptations  of  the  persons  who  organize  and 
control  these  large  corporations  to  earn  dividends  on  watered 
stock  as  soon  as  possible,  so  that  such  stock  may  be  unloaded 
in  the  open  markets  upon  the  investing  public.  These 
dividends  can  rarely  if  ever  be  made  without  increasing 
prices  to  the  consumer. 

"  c.  Exploitation  not  only  of  the  consuming  public  and  of 
the  investing  public,  as  already  set  out,  but  also  of  the 
corporations  themselves,  by  their  officers,  directors,  and 
trustees,  who  do  not  hesitate  to  overburden  the  consumer, 
to  deceive  the  investor,  and  to  take  advantage  of  the  cor- 
porations that  have  trusted  them,  whenever  it  will  line  the 
pockets  of  such  individual  trustees." 

Section  6 

THE  MEAT  PACKING  INDUSTRY' 

The  Big  Six.  —  Another  industry  in  which  a  large  part  of 
the  business  has  been  concentrated  with  a  few  companies  is 

» Report  of  the  Attorney-General,  1910,  pp.  12-142,  1911,  p.  21. 
*  Report  of  the  Commissioner  of  Corporations  on  the  Beef  Industry. 
Washington  Government  Printing  Office,  1905. 


ILLUSTRATIONS   OF  CONCENTRATION      151 

meat  packing.  The  report  of  the  Commissioner  of  Corpo- 
rations is  based  upon  facts  available  to  the  end  of  1904,  and 
the  statements  below  should  be  considered  of  that  date. 
The  large  packing  companies  are :  Armour,  Swift,  Morris, 
National,  Schwartzchild  &  Sulzberger,  and  Cudahy,  fre- 
quently called  the  "  Big  Six."  These  control  50  per  cent  of 
the  beef  packing  industry  of  the  United  States.  Also  these 
companies  handle  hogs,  sheep,  calves ;  and  they  do  an  exten- 
sive business  in  the  purchase,  storage,  and  sale  of  dairy  and 
poultry  products.  The  by-products  of  these  companies  are 
very  important;  some  of  these  are  hides,  fat,  and  fertilizer. 
Each  of  the  companies  owtis  refrigerator  lines  for  the  trans- 
portation of  products,  and  each  does  a  general  refrigerating 
business. 

While  the  total  business  of  the  "Big  Six"  is  only  about 
50  per  cent  of  the  whole,  in  the  large  cities  of  the  East  they  do 
a  much  larger  proportion;  for  instance,  in  New  York  75 
per  cent,  in  Boston  85  per  cent,  in  Philadelphia  and  Pitts- 
burg 60  per  cent.  On  the  other  hand,  in  cities  west  of  Percentage 
Pittsburg,  such  as  Cleveland,  Cincinnati,  and  Indianapolis,  °  usmess. 
not  one  half  of  the  business  belongs  to  these  companies. 
Even  in  the  small  towns  in  New  England  these  companies 
control  about  three  fourths  of  the  business;  but  in  the 
Western  states,  in  cities  having  populations  of  fifty  thousand 
or  less,  they  usually  control  less  than  half  of  the  business. 

The  total  capitahzation  of  these  companies  in  1905  was 
$93,000,000,  which  mcluded  $5,000,000  in  bonds.  The  gross 
business  of  the  six  companies  was  about  $700,000,000  per 
annum.  With  one  exception  these  companies  have  largely 
grown  up  as  a  single  corporation  and  have  increased  in  size  as 
business  has  grown,  although  to  a  certain  extent  the  growth 
has  been  by  accretion  through  the  purchase  of  other  com- 
panies. However,  the  National  Packing  Company  is  an 
exception  to  this,  in  that  it  was  organized  in  1903  through 
the  consolidation  of  a  number  of  existing  companies.  In 
1906  there  was  comparatively  little  interownership  among 
the  large  companies. 

The  big  companies  have  either  owned  or  are  largely  in- 


152    CONCENTRATION  AND  CONTROL 

terested  in  a  number  of  subsidiary  packing  companies  and 
other  companies,  the  business  of  which  is  allied  to  the  pack- 
ing business.  Thus  the  Armour  Company  of  Illinois  owns 
or  controls  packing  companies  in  New  Jersey  and  Louisiana, 
car  lines,  fertilizer  works,  soap  works,  and  glue  works.  Also 
owned  or  controlled  by  the  company  are  the  Armour  Grain 
Enter  aUied  Company,  the  Armour  Elevator  Company,  the  Continental 
business.  Fruit  Express,  and  large  interests  in  stockyards  at  Omaha, 
Fort  Worth,  Sioux  City,  St.  Louis,  and  Kansas  City.  A 
similar  but  not  identical  line  of  business  is  owned  or  con- 
trolled by  each  of  the  other  large  companies.  This  is  espe- 
cially true  of  the  Swift  and  the  National  Packing  com- 
panies. Each  of  the  large  companies  owns  large  packing 
houses  in  various  cities;  for  instance,  the  Swift  Illinois 
corporation  has  packing  houses  at  Chicago,  Omaha,  Kansas 
City,  East  St.  Louis,  St.  Joseph,  St.  Paul,  and  Fort  Worth. 
Capitalization  and  Profits.  —  It  is  the  opinion  of  the 
Commissioner  of  Corporations,  at  the  time  his  report  was 
rendered  in  1906,  that  these  companies  are  not  largely  over- 
capitalized. At  any  rate,  they  are  in  a  very  marked  contrast 
with  the  American  Tobacco  Company,  a  business  of  much 
less  importance;  but  in  which  the  capitalization  is  between 
three  and  four  times  that  of  the  six  beef  companies  combined. 
At  the  time  the  Commissioner  made  his  report  he  did  not 
regard  the  profits  of  the  companies  as  excessive  as  compared 
with  the  business.  Thus  the  profits  of  Swift  in  1904  were 
placed  at  $3,850,000,  and  this  profit  includes  that  on  private 
cars,  or  1.9  per  cent  on  the  entire  transactions  of  the  com- 
pany. In  no  case,  from  1902  to  1904,  did  the  profits  of  the 
company  exceed  2  per  cent  on  the  sales.  However,  if  the 
profits  be  looked  at  from  the  point  of  view  of  capitaliza- 
tion, for  Swift,  $3,850,000  would  represent  a  profit  of  11 
per  cent  on  the  capitalization  of  $35,000,000.  The  net 
profits  of  the  Cudahy  Company  are  reported  to  be  $927,969 
in  1904,  1.8  per  cent  of  the  volume  of  the  business.  If  the 
car  lines  be  considered  separately,  the  profits  on  this  part 
of  the  business  are  greater,  from  14  to  17  per  cent  on  the 
capital  invested  on  the  basis  of  $1000  per  car. 


ILLUSTRATIONS   OF   CONCENTRATION      153 

If  the  price  of  cattle  and  the  price  at  which  dressed  beef 
is  sold  are  compared,  it  is  found  that  there  is  a  rough  parallel- 
ism between  the  two.  However,  when  the  price  of  cattle 
rose,  there  was  a  tendency  for  the  price  of  beef  to  rise  to  a 
somewhat  greater  extent,  giving  a  larger  margin  of  profit. 
This  was  especially  marked  in  1902. 

The  above  statements  refer  to  the  wholesale  prices  of 
beef ;  the  retail  price  is  quite  another  matter.  It  is  probable 
that  the  retailer  has  been  able  to  secure  a  larger  profit  upon 
his  sales  than  was  possible  before  the  combinations  existed. 
This  is  not  due  altogether  to  the  great  combination,  but  to 
the  tendency  for  retail  men  at  a  given  point  to  cooperate, 
this  tendency  being  synchronous  with  the  general  movement 
in  recent  years  toward  combination  of  the  men  engaged  in  the 
same  business  in  the  United  States. 

Principles  Illustrated.  —  Concentration  in  the  packing 
industry  has  given  various  economic  advantages,  among 
which  are  the  following :  The  returns  from  the  by-products 
are  a  considerable  portion  of  the  entire  business,  the  value 
being  roughly  25  per  cent  of  the  total.  The  small  slaughter- 
house is  at  a  great  disadvantage  in  respect  to  these  by- 
products ;  a  large  abattoir  may  save  everything.  A  second 
advantage  of  concentration  is  the  location  of  abattoirs  by 
the  same  company  in  different  cities.  Through  this  arrange-  Economic 
ment  cross  freights  are  saved.  The  beef  cattle  for  the  ^^"'^' 
packing  house  at  a  given  city  are  acquired  from  the  territory 
contiguous  to  that  city.  The  demands  for  beef  in  that 
territory  are  supplied  by  that  plant.  Furthermore,  for  the 
eastern  part  of  the  United  States  there  is  an  advantage  in 
that  the  beef  cattle  are  killed  near  the  source  and  only  the 
dressed  product  shipped  to  the  market,  thus  reducing  greatly 
the  amount  of  freight  to  be  handled,  since  the  weight  of  the 
dressed  beef  is  only  from  54  to  57  per  cent  of  the  weight  of 
the  live  cattle. 

There  can  be  little  doubt  that,  since  the  organization  of   • 
these  six  great  beef  companies  and  their  combination  with 
affiliated  companies  in  controlling   the    stockj^ards,   it  has 
become  more  difficult  for  an  additional  great  company  to 


154 


CONCENTRATION   AND  CONTROL 


enter  the  business.  The  large  interstate  business  of  the 
country  is  in  very  great  measure  controlled  by  the  "  Big 
Six";  the  local  business  is  still  largely  with  the  small 
company. 

In  1905  an  indictment  was  brought  against  a  considerable 
number  of  the  officers  of  the  ''  Big  Six,"  charging  that  they 
were  in  combination  and  in  restraint  of  trade  and  that  they 
had  "  an  agreement,  understanding,  and  arrangement  among 
themselves  whereby  they  fixed,  regulated,  and  controlled 
prices."  ^  The  trial  of  those  charged  under  the  indictment 
did  not  take  place  until  in  1912.  On  March  26,  the  long 
contest  was  closed  by  the  jury  finding  that  the  officers  of 
these  companies  were  not  guilty  under  the  criminal  section 
of  the  Sherman  act  against  conspiracy  in  restraint  of  trade. 

Section  7 


Timber 
supply. 


Concentra- 
tion of 
ownership. 


THE  LUMBER  INDUSTRY « 

In  the  United  States  concentration  of  the  ownership  of 
standing  timber  has  progressed  far. 

The  General  Situation.  —  "  Certain  basic  facts  in  the  lumber 
industry  are  as  follows :  — 

"  First.  The  entire  remaining  supply  of  standing  timber 
in  continental  United  States  (excluding  Alaska)  is  now 
about  two  hundred  and  eighty  billion  board  feet,  of  which 
about  twenty-two  hundred  billion  is  privately  owned.  (The 
unit  'board  foot'  is  a  foot  square  and  an  inch  thick.) 

"  Second.  There  has  come  about,  and  there  is  still  pro- 
ceeding, a  very  remarkable  concentration  in  the  ownership 
of  this  remaining  standing  timber  in  the  hands  of  a  com- 
paratively few  interests.  This  concentration  results  chiefly 
from  the  speculative  holding  of  timber  lands  for  future  profit, 
primarily  made  possible  by  our  long-standing  public  land 
policy. 

"  Third.     From  the  time  when  the  vast  majority  of  our 

1  United  States  of  America  v.  Louis  F.  Swift  et  al.,  Decision,  p.  2. 
*  Summary  of  Report  of  the  Commissioner  of  Corporations  on  the  Lumber 
Industry,  Part  I,  "Standing  Timber." 


ILLUSTRATIONS   OF  CONCENTRATION       155 

present  timber  supply  left  the  hands  of  the  one  great  original 
owner,  the  United  States,  till  the  present  there  has  been  an 
enormous  increase  in  the  value  of  standing  timber.  This 
increase  has  varied  greatly,  according  to  local  conditions,  increase 
but  practically  everywhere  it  has  been  man>iold  —  sixfold,  i^  value, 
tenfold,  twent3rfold,  thirtyfold,  and  in  some  cases  fifty- 
fold.  The  present  commercial  value  of  the  privately  owned 
standing  timber  in  the  country,  not  including  the  value  of 
the  land,  is  estimated  (though  in  the  nature  of  the  case  such 
an  estimate  must  be  very  rough)  as  at  least  $6,000,000,000. 
''These  conditions  must  be  considered  in  the  light  of  the 
further  facts  that  our  standing  timber  is  a  natural  resource 
created  almost  exclusively  by  nature;  that  where  it  has 
not  been  destroyed  it  is  substantially  in  the  same  condition 
as  when  it  left  the  hands  of  the  government;  that  human 
effort,  or  the  private  owners  that  hold  and  have  left  it,  have 
added  practically  nothing  to  it ;  that  while  a  certain  amount  The  un- 
of  reforestation  is  possible,   standing  timber  is  a  resource  f^'"^^^ 

'  ^  increment. 

in  the  main  quite  similar  to  our  ore  and  coal  measures ;  that 
our  present  annual  consumption  of  timber  is  about  three 
times  the  annual  growth,  and  the  demand  is  steadily  increas- 
ing; that  speculative  holding  of  timber  land  for  future 
rise  in  no  way  improves  the  character  of  the  timber  and 
does  not  give  such  public  service  as  is  given  by  those  who 
acquire  lands  for  actual  present  use  and  improvement. 
While  the  profits  of  speculative  timber  holding  have  been 
enormous,  as  will  be  hereafter  shown,  the  risks  of  such  hold- 
ing and  the  services  rendered  by  the  holders  are  peculiarly 
small  in  comparison  with  those  profits. 

"These  great  facts  have  brought  about  certain  results  of 
tremendous  significance  from  the  standpoint  of  the  public 
welfare.     The  timber  supply  is  a  diminishing  natural  resource.   Rise  in 
Its  increasing  concentration  into  a  comparatively  few  strong  P"ces  and 

°  concentra- 

hands  has  conferred  upon  those  strong  holders  a  vast  power  tion. 
over  the  timber  industry  and  over  prices  therein ;    and  has 
itself  greatly  accelerated  the  enormous  rise  in  timber  values." 
The  lumber  industry  is  one  in  which  the  units  of  manu- 
facture are  not  of  extremely  large  size,  because  the  material 


156 


CONCENTRATION  AND  CONTROL 


Limit  in 
size  of 
miU. 


Four  fifths 
in  private 
ownership. 


is  SO  heavy  as  compared  with  its  value  that  it  cannot  be 
transported  a  great  distance  advantageously.  The  logs, 
by  stream  in  favored  localities  and  by  railroad  in  others, 
must  be  transported  to  the  mill.  Where  the  logs  float 
downstream  the  expense  is  not  great.  For  the  lumber  so 
located  that  it  must  be  transported  by  rail  the  cost  in- 
creases more  rapidly  with  distance,  so  that  there  is  a  limit 
beyond  which  it  is  not  advantageous  from  the  point  of  view 
of  economic  efficiency  to  transport  logs,  and  this  fixes  the 
size  of  the  mill  to  that  adapted  to  the  work  of  sawing  the 
logs  for  the  tributary  area.  "The  largest  sawmill  in  the 
country  cuts  less  than  one  half  of  one  per  cent  of  the  total 
annual  output  of  lumber."  Since  the  control  of  the  mar- 
ket is  not  readily  secured  by  concentration  of  sawmills,  it 
has  been  secured  by  the  concentration  of  the  ownership  of 
standing  timber. 

Concentrated  Ownership  of  Timber.  —  Of  the  merchantable 
saw  timber  of  the  United  States  20  per  cent  is  still  owned  by 
the  govermnent,  leaving  80  per  cent  in  private  hands.  Of 
the  vast  amount  of  timber  in  private  holdings  the  concentra- 
tion of  ownership  is  shown  by  the  following  table :  — 


Table  46. 


Concentration   of   Timber  Ownership  by  Groups,  shown 
Cumulatively,  in  Entire  Investigation  Area 


Number  op 
Holders 

Amount  of  Timber 

Owned  in  Billions 

OP  Feet 

Per  Cent  op 
Total 

Total    . 

1747.0 

100.0 

Group  1   . 
Groups  1-2 
Groups  1-3 
Groups  1-4 
Groups  1-5 
Groups  1-6 
Groups  1-7 
Groups  1-8 
Groups  1-9 
Groups  1-10 
Group  11 

3 

8 

22 

48 

90 

195 

385 

658 

1147 

1802 

237.5 

339.5 

459.0 

574.3 

690.5 

839.7 

972.1 

1068.5 

1153.3 

1208.8 

538.2 

13.6 
19.4 
26.2 
32.8 
39.5 
48.0 
55.6 
61.1 
66.0 
69.2 
30.8 

ILLUSTRATIONS   OF  CONCENTRATION      157 

"From  this  table  it  will  be  seen  that  three  holdings  include 
no  less  than  237.5  billion  feet,  or  nearly  11  per  cent  of  the 
privately  owned  timber  in  the  entire  country,  and  over  13.5 
per  cent  of  the  privately  owned  timber  in  the  investigation 
area.  These  three  holders  are  the  Southern  Pacific  Com-  The  big 
pany,  the  Weyerhaeuser  Timber  Company,  and  the  Northern  *^^^®" 
Pacific  Railway  Company.  Five  other  holders  ranking  next 
in  importance  own  in  the  investigation  area  an  aggregate 
of  102  billion  feet,  or  4.6  per  cent  of  the  total  privately  owned 
timber  of  the  country  and  5.8  per  cent  of  that  in  the  investi- 
gation area.  Thus  the  eight  large  holders  together  own 
approximately  340  billion  feet  of  timber,  or  15.4  per  cent  of 
the  total  privately  owned  timber  of  the  country  and  19.4 
per  cent  of  that  in  the  investigation  area. 

"Twenty-two  holders  own  26.2  per  cent  of  all  the  timber 
in  the  investigation  area;  195  holders  own  48  per  cent. 
Stated  in  another  way,  more  than  one  eighth  of  the  total  tim- 
ber in  the  investigation  area  (this  representing  80  per  cent 
of  the  total  privately  owned  timber  of  the  United  States)  is 
owned  by  only  3  holders;  more  than  one  fourth  is  owned 
by  only  22  holders.     Almost  one  half  is  owned  by  195  holders. 

"The  most  marked  concentration  is  in  the  hands  of  the 
comparatively  few  large  holders  of  the  upper  groups;  the 
lower  groups  control  a  much  less  important  percentage. 
Thus,  while  the  385  holders  in  groups  1  to  7,  inclusive,  con- 
trol 55.6  per  cent  of  the  timber  in  the  investigation  area,  the 
273  holders  in  group  8  control  only  5.5  per  cent,  the  489 
holders  in  group  9  only  4.9  per  cent,  and  the  655  holders  in 
group  10  only  3.2  per  cent. 

"Furthermore,  these  10  groups,  1802  holdings,  embrace 
nearly  70  per  cent  of  the  total  timber  in  the  investigation 
area,  while  group  11,  the  remaining  holdings,  aggregating 
unnumbered  thousands,  have  in  all  only  538.2  billion  feet, 
or  30.8  per  cent  of  the  total." 

An  organization  is  regarded  as  holding  a  property  when  it 
has  more  than  one  half  of  the  stock  of  a  corporation.  Even 
the  above  statements  do  not  indicate  the  real  extent  of  con- 
centration of  ownership,  since  many  great  timber  holders 


158 


CONCENTRATION  AND  CONTROL 


Enormous 
holdings  in 
Pacific 
states. 


The  timber 
given  away. 


have  stock  in  several  companies.  Further,  where  in  great 
holdings  of  timber  small  holdings  are  blocked  in,  they  are 
practically  controlled  by  the  large  holders,  since  the  owners 
of  the  smaller  blocks  can  only  sell  to  the  surrounding 
holders  or  get  the  timber  out  through  cooperation  with 
such  holders. 

Of  the  three  great  companies,  the  Southern  Pacific  is  first, 
the  Weyerhaeuser  is  second,  and  the  Northern  Pacific  is  third, 
the  holdings  of  the  three  together  constituting  23.5  per  cent 
of  all  the  privately  owned  timber  in  the  five  states  of  the 
Pacific  Northwest.  In  order  to  appreciate  the  magnitudes 
of  the  Southern  Pacific  holdings  it  may  be  said  that  the 
timber  of  this  company  "stretches  practically  all  the  way 
from  Portland,  Ore.,  to  Sacramento,  Calif.,  a  distance  of 
682  miles.  The  running  time  of  the  fastest  train  between 
these  two  points  is  thirty-one  hours ;  yet  during  all  that  time 
the  traveler  is  passing  through  lands  a  large  proportion  of 
which  for  thirty  miles  on  each  side  of  him  belongs  to  the 
corporation  over  whose  track  he  is  riding,  and  in  almost 
the  entire  strip,  60  miles  wide  and  682  miles  long,  this 
corporation  is  the  dominating  owner  of  both  timber  and 
land." 

The  holdings  of  these  three  great  companies  are  based  upon 
government  grants.  That  of  the  Southern  Pacific  was  ac- 
quired almost  exclusively  by  government  gift,  and  the  Weyer- 
haeuser holdings  were  largely  purchased  from  the  government- 
granted  lands  of  the  Northern  Pacific.  The  original  vast 
grants  were  made  more  valuable  by  the  law  which  permitted 
the  exchange  of  lands  in  the  forest  reserves  and  parks  for 
other  lands.  Much  of  the  land  released  in  the  Pacific  forest 
reserve  and  Mount  Ranier  National  Park  had  comparatively 
little  timber,  and  in  exchange  the  great  companies  selected 
heavily  timbered  land. 

While  the  concentration  in  timber  holding  is  great  for  the 
country  as  a  whole,  it  is  still  greater  in  single  regions.  At 
the  present  time  the  largest  quantity  of  the  most  valuable 
timber  is  in  the  Pacific  Northwest.  Concentration  in  this 
region  is  shown  by  the  following  table  :  — 


ILLUSTRATIONS   OF  CONCENTRATION      159 


Table  47. 


Concentration  of  Timber  Ownership  by  Groups,  shown 
Cumulatively  in  Pacific  Northwest 


Number  op 
Holders 

Amount  op  Timber 

Owned  in 
Billions  op  Feet 

Per  Cent  of 
Total 

Total    .... 

1013.0 

100.0 

Group  1   .     . 
Groups  1-2  . 
Groups  1-3  . 
Groups  1-4  . 
Groups  1-5  . 
Groups  1-6  . 
Groups  1-7  . 
Groups  1-8  . 
Groups  1-9  . 
Groups  1-10 
Group  11 

3 

8 

20 

38 

64 

131 

217 

313 

489 

711 

237.5 
338.9 
436.3 
507.3 
571.9 
663.8 
723.0 
757.3 
789.1 
807.4 
205.6 

23.5 
33.5 
43.1 
50.1 
56.5 
65.6 
71.4 
74.8 
77.9 
79.7 
20.3 

"The  pronounced  concentration  of  timber  ownership  in 
the  Pacific  Northwest  is  at  once  apparent  from  this  table. 
The  3  largest  companies  own  over  23  per  cent  of  the  total, 
or  almost  one  fourth,  while  5  more  own  10  per  cent,  these 
8  holders  having  a  little  more  than  a  third  of  the  total  for  this 
region.  The  next  12  holders  own  over  9  per  cent,  giving  the 
20  principal  holders  43  per  cent  of  the  total.  The  next  18 
own  7  per  cent;  thus  no  less  than  50  per  cent  of  the  total 
privately  owned  timber  in  this  vast  region  is  in  the  hands  of 
38  holders.  The  next  6  groups,  comprising  673  holders,  to- 
gether own  less  than  30  per  cent  of  the  total." 

Concentration  of  ownership  in  the  southern  pine  belt  and 
in  the  lake  region,  while  great,  is  not  so  far  advanced  as  in 
the  Pacific  Northwest.  In  all  regions  the  concentration  is 
greater  for  the  high  class  timber,  such  as  fir,  pine,  and  cy- 
press, than  it  is  for  the  less  valuable  hard  wood. 

Rising  Prices. — Since  timber  is  a  natural  resource,  which 
is  diminishing  in  quantity,  it  is  inevitable  that  in  anticipa- 
tion of  a  lack  of  sui^ply,  the  prices  for  timber  are  continually 


160 


CONCENTRATION  AND  CONTROL 


Multipli- 
cation of 
prices. 


Our  heri- 
tage 
squandered. 


rising;  for  timber  is  being  cut  at  the  present  time  about 
three  times  as  fast  as  it  is  renewed.  However,  the  enhance- 
ment of  price  has  been  greatly  accelerated  because  of  the 
concentration  in  ownership.  Many  illustrations  could  be 
given  as  showing  the  increase  in  the  value  of  timber.  For 
instance,  upon  the  average  for  Minnesota,  the  state  has  re- 
ceived from  its  pine  lands  a  steadily  increasing  amount.  In 
1880,  the  average  price  per  thousand  feet  was  $1.47  ;  in  1890, 
$2.25;  in  1900,  $5.17;  and  in  1909,  $7.53,  or  more  than  five 
times  the  price  in  1880.  Other  illustrations  of  the  rise  in 
price  during  the  past  twenty  years  are  as  follows :  from  $5 
to  $30  an  acre,  $7  to  $40,  $20  to  $150,  $1  to  $13,  $4  to  $140, 
$1  to  $50. 

The  government  gave  its  lands  as  bonuses  to  railroads, 
canals,  and  wagon  roads,  or  received  $1.25  or  $2.50  per  acre 
for  the  same.  In  short,  our  reckless  liberality  in  giving  away 
our  natural  resources  and  our  defective  land  laws  were  the 
chief  underlying  causes  which  have  led  to  the  extraordinary 
concentration  in  ownership  of  one  of  the  great  natural  re- 
sources of  the  country,  the  timber. 


Section  8 

THE  WATER  POWERS  i 

The  water  powers  of  the  country  have  in  recent  years  be- 
come of  rapidly  increasing  importance.  This  has  followed 
as  a  consequence  of  the  improvements  in  the  electrical  trans- 
mission of  power.  It  is  now  possible  to  transmit  power 
economically  from  a  given  center  to  a  distance  of  two  hun- 
dred miles  and  over  an  area  of  one  hundred  thousand  square 
miles. 

The  Amount  and  Distribution.  —  The  minimum  potential 
water  power  of  the  United  States  is  estimated  at  32,083,000 
h.p.,  and  the  maximum  at  61,678,000  h.p.    Assuming  an 


1  Report  of  Commissioner  of  Corporations  on  Water  Power  Development 
in  the  United  States.  Washington  Government  Printing  Office,  1912, 
p.  220.  "Conservation  of  Natural  Resources  in  the  United  States,"  C. R.  Van 
Hise,  pp.  118-161,  The  Macmillan  Company,  New  York,  1910. 


ILLUSTRATIONS   OF  CONCENTRATION        161 

efficiency  of  75  per  cent  for  this  potential  horse  power,  the 
water  powers  would  give  a  minimum  effective  energy  of 
20,736,000  h.p.,  and  a  maximum  of  51,398,000  h.p.  By  mini- 
mum horse  power  is  meant  the  average  available  for  the  two 
weeks  of  lowest  water  during  a  period  of  seven  years ;  by 
the  maximum  is  meant  that  which  is  available  during  a 
period  of  not  less  than  six  months  each  year. 

From  1905  to  1907  the  amount  of  mechanical  energy  used 
in  the  United  States  was  approximately  23,000,000  h.p.,  of 
which  3,432,000  h.p.,  or  15  per  cent,  was  produced  by  water, 
the  remainder  being  developed  by  steam  and  internal  com- 
bustion engines.  In  June,  1911,  the  developed  water  power 
installations,  greater  than  1000  each,  amounted  to  4,016,127 
h.p.,  and  that  in  units  less  than  1000  h.p.,  to  2,000,000  h.p., 
making  a  total  in  round  numbers  of  6,000,000  h.p. 

Of  the  water  power  installations  nearly  50  per  cent  of 
those  developed  for  sale  and  for  public  service  corporations 
was  located  in  five  states,  as  shown  by  Table  48. 


Table  48.    Showing  Commercial  Water  Power  in  Five  States 

Per  Cent 

California 14 

New  York 13 

Washington 10 

Pennsylvania 6 

South  Carolina 5 

Total 48 


The  water  power  which  is  used  for  manufacturing  is  even 
more  concentrated  than  the  "commercial"  water  power,  as 
is  shown  by  Table  49. 


Table  49.    Water  Power  in  a  Number  of  States  Employed  in 
Manufacture 

Per  Cent 

New  York 30 

New  England  States 36 

Minnesota  and  Wisconsin 17 

South  Carolina 5 

Total 88 


162    CONCENTRATION  AND  CONTROL 

Concentration  of  Ownership.  —  There  are  strong  economic 
forces  which  tend  to  concentrate  the  ownership  of  water 
powers. 

The  demand  for  energy  is  very  unequally  distributed,  both 
as  to  time  and  place.  There  are  variations  in  the  amount 
of  power  needed  in  winter  and  in  summer;  there  are  even 
greater  variations  in  the  demands  during  a  given  day.  If, 
for  any  district,  the  different  water  powers  are  coupled  up, 
a  greater  amount  of  energy  can  be  utilized  than  if  each  be 
managed  separately.  Consequently  the  most  efficient  use 
of  water  power  is  gained  by  "gathering  into  a  single  unit  all 
Reasons  for  the  power  available  for  a  given  market  or  group  of  markets 
tkm^"*'^^'  using  the  same  system  of  transmission  lines."  Another 
reason  for  concentration  is  that  the  limit  of  two  hundred 
miles  for  economic  transmission  of  power  makes  it  impossible 
for  the  water  powers  of  one  district  to  compete  with  those  of 
another.  Therefore,  if  all  the  water  powers  of  a  single  dis- 
trict or  a  large  portion  of  them  can  be  acquired  by  a  single 
concern,  there  will  be  monopoly  in  that  district.  Concen- 
tration has  also  been  promoted  by  the  close  connection  be- 
tween the  manufacturers  of  hydro-electric  machinery  and 
the  water  power  companies,  and  by  a  union  of  these  with 
financial  concerns  especially  interested  in  these  lines  of  busi- 
ness. 

In  consequence  of  the  foregoing  factors,  in  each  of  the 
principal  regions  in  which  water  powers  are  developed  on  a 
large  scale,  the  control  of  the  greater  part  of  the  same  is  by 
one  or  two  companies. 

"In  California  the  bulk  of  the  power  produced  in  the 
northern  half  of  the  state  is  controlled  by  a  single  interest, 
and  that  in  the  southern  half  by  only  two  companies.  In 
Montana  two  companies  control  96  per  cent  of  all  the  de- 
veloped power  of  the  state;  and  in  Washington  a  single 
interest  controls  the  power  situation  in  the  Puget  Sound 
region,  while  another  interest,  more  or  less  closely  affiliated 
with  it,  controls  the  developed  power  elsewhere  in  the  state. 
All  the  developed  power  in  the  vicinity  of  Denver,  Colo.,  and 
nearly  70  per  cent  of  the  total  developed  power  in  that  state, 


ILLUSTRATIONS   OF  CONCENTRATION        163 

is  controlled  by  one  interest.     In  South  Carolina  one  corpora-  strong 
tion  owns  75  per  cent  of  the  developed  commercial  power,  ^"^^t  °^  °^ 
while  in  North  Carolina  45  per  cent  of  such  power,  developed  companiea. 
and  under  construction,  is  controlled  by  a  single  interest. 
One  group  of  interests  practically  controls  58  per  cent  of  all 
the  commercial  power,  developed  and  under  construction, 
in  Georgia.     In  the  Lower  Peninsula  of  Michigan  a  single 
group  owns  73  per  cent  of  all  such  power.     The  great  devel- 
opment at  Niagara  Falls  on  the  American  side  is  controlled 
by  only  two  companies." 

Not  only  is  there  concentration  in  control  of  districts,  but 
the  same  companies  have  large  interest  in  water  powers  in 
different  districts. 

"The  General  Electric  interests  control  the  water  power 
situation  in  large  portions  of  Washington,  Oregon,  Colorado, 
Montana,  and  elsewhere.  The  Stone  and  Webster  interests 
exercise  control  (based  largely,  however,  on  management 
rather  than  ownership)  in  localities  in  Washington,  Iowa, 
and  Georgia.  The  Pacific  Gas  and  Electric  Co.,  practically 
dominates  the  power  situation  in  a  large  number  of  localities 
in  the  northern  half  of  California.  The  Southern  Power 
Co.,  controls  the  power  situation  in  South  Carolina  and  has 
a  strong  foothold  in  North  Carolina.  The  S.  Morgan  Smith 
interests  dominate  the  power  situation  in  the  vicinity  of 
Atlanta,  Ga.  The  Telluride  Power  Co.  controls  absolutely 
a  large  territory  in  Utah  and  Idaho.  The  Commonwealth 
Power,  Railway,  and  Light  Co.,  which  is  a  part  of  the  Clark- 
Foote-Hodenpyl-Walbridge  interests,  dominates  the  power 
situation  in  the  Lower  Peninsula  of  Michigan.  The  Gould 
interests  control  the  best  of  the  available  water  powei  sites 
in  the  vicinity  of  Richmond,  Va." 

Also  there  is  a  very  close  relation  between  the  water  power 
companies  and  the  public  service  corporations,  since  the 
largest  use  of  the  power  is  for  street  railways,  electric  lighting 
of  cities,  etc. 

"In  the  country  as  a  whole,  water  power  companies,  or 
companies  affiliated  with  them,  own  or  control  and  operate 
street  railways  in  no  less  than  111  cities  and  towns  in  the 


164 


CONCENTRATION  AND  CONTROL 


Commu- 
nity of 
interests. 


Saving 
of  coal. 


Price  of 

water- 
created 
energy. 


United  States,  electric  lighting  plants  in  669  cities  and  towns, 
and  gas  plants  in  113  cities  and  towns.  These  companies, 
moreover,  supply  power  to  municipal  lighting  plants  in  a 
considerable  number  of  cities  and  towns.  Many  of  these 
are  among  the  most  important  municipalities  in  the  states 
involved.  Furthermore,  in  many  cities  and  towns  in  the 
United  States  all  the  pubUc  utiUties  —  street  railways,  electric 
lighting  and  gas  plants  —  are  controlled  by  water  power 
interests." 

Finally  there  is  very  close  interrelation  of  the  large  water 
power  interests  through  common  financial  houses,  common 
directorates,  and  common  ownership  of  public  utilities. 

The  use  of  the  6,000,000  h.p.,  now  developed,  saves 
at  least  33,000,000  tons  of  coal.  If  the  amount  of  water 
power  used  could  be  made  fourfold,  this  would  save  annu- 
ally more  than  130,000,000  tons  of  coal.  So  great  a  saving 
of  a  fundamental  resource  would  mean  much  to  the  future  of 
the  nation.  It  is  clear,  therefore,  that  the  greatest  "waste 
of  water  power  is  its  non-use."  But  we  must  recognize  that 
its  rapid  development  can  only  be  accomplished  by  unifica- 
tion of  storage,  coupling  up,  and  cooperation  with  public 
utilities  corporations.  Thus  water  powers  probably  furnish 
the  best  illustration  of  the  tendency  toward  concentration 
of  a  natural  resource  limited  in  quantity. 

Public  Control.  —  The  prices  charged  for  water  power  at 
present  are  substantially  those  that  the  traffic  will  bear.  If 
the  prices  are  made  too  high,  public  utilities  and  manufac- 
tories using  water  power  will  not  be  rapidly  developed.  It 
is  obvious  that  the  price  for  water  power  cannot  be  made 
higher  than  for  equivalent  energy  produced  by  coal ;  there- 
fore in  the  part  of  the  East  where  coal  is  cheap,  water- 
developed  energy  is  relatively  low.  In  localities  where  coal 
is  expensive,  as  in  the  Pacific  Northwest,  the  traffic  will  bear 
more;  and  the  price  of  water-created  energy  is  placed  very 
high  by  the  controlling  companies,  in  some  instances  as 
high  as  $40  per  horse  power  per  annum  to  the  large  con- 
sumers. 

The  amount  of  water  in  the  United  States  even  when  fully 


ILLUSTRATIONS   OF  CONCENTRATION      165 

developed  will  be  far  short  of  the  energy  which  in  the 
future  will  be  required  for  the  industries  and  public  utilities. 
This  is  evident  by  the  fact  that  there  is  already  in  use  al- 
most as  much  energy  as  the  entire  minimum  horse  power 
available  for  the  United  States.  For  the  great,  densely 
settled  regions,  it  will  not  be  possible  to  gain  through  the 
use  of  water  more  than  a  relatively  small  fraction  of  the 
energy  needed.  Hence  there  is  a  sound  reason  for  not 
placing  the  price  of  energy  derived  from  water  on  the  market 
at  a  lower  rate  than  that  derived  from  the  consumption  of 
coal,  otherwise  those  who  are  obliged  to  obtain  their  power 
from  coal  would  be  at  a  disadvantage. 

Since,  however,  energy  derived  from  water  power  is  upon 
the  whole  very  cheaply  produced,  requiring  only  a  capital 
investment  of  from  $40  to  $300  per  horse  power  for  instal- 
lations of  moderate  size,  and  the  expense  of  the  operation  is 
very  low,  it  is  clear  that  the  profits  from  the  development  of 
water  power  upon  the  average  are  large.  The  public  should 
gain  the  advantage  of  this  natural  source  of  power  which  will  Public 
be  available  in  perpetuity.  In  all  cases  in  which  the  public  ^\^^^  ^^^ 
still  retains  the  right  to  the  energy  of  falling  water,  some 
plan  should  be  devised  which  will  give  to  the  public  a  large 
part  of  the  difference  between  the  cost  of  producing  energy 
by  water  and  of  producing  an  equivalent  amount  of  energy 
by  coal.  Where  the  government  or  the  states  retain  the 
water  power  sites  this  will  be  easily  accomplished  through 
a  lease  or  rental  system. 

Fortunately  the  United  States  government  still  owns  the 
land  adjacent  to  many  of  the  streams  in  the  western  part 
of  the  United  States,  and  has  all  the  water  rights  for  a  large 
number  of  water  power  sites.  Some  of  the  states,  illus- 
trated by  Illinois  and  New  York,  also  owti  some  of  the  water 
power  there  located.  A  number  of  municipalities  own  water 
powers,  among  which  Los  Angeles  has  first  place,  controlling 
more  than  100,000  h.p. ;  and  Chicago,  Augusta,  Ga.,  Seattle, 
and  Tacoma,  are  very  important,  each  controlling  from 
12,000  to  76,000  h.p.  In  several  of  the  Western  states, 
illustrated  by  Colorado,  California,  North  Dakota,  Wash- 


166 


CONCENTRATION  AND  CONTROL 


Future 
importance 
of  water 
powers. 


ington,  Wyoming,  Idaho,  and  Oregon,  the  use  of  water  for 
all  purposes  has  been  declared  to  be  a  public  use ;  and  in 
some  of  them  the  water  in  its  entirety  has  been  declared  to 
belong  to  the  public. 

Whatever  public  rights  to  the  use  of  water  for  the  develop- 
ment of  energy  exist,  they  should  be  jealously  guarded ;  for  in 
the  distant  future,  when  the  coal  is  gone,  the  power  of  falling 
water  is  the  only  source  of  cheap  energy  of  which  we  have 
knowledge  at  present.  When  that  time  comes,  the  owners 
of  the  water  powers  will  control  the  industries  of  the  nation. 
The  energy  from  falling  water  so  far  as  publicly  owned  or 
controlled  should  be  sold  for  a  limited  term  of  years  at  a 
rate  sufficiently  low  to  lead  to  prompt  development^  and 
thus  displace  as  much  coal  as  possible.  A  large  part  of  the 
margin  between  the  selling  price  and  the  cost  of  develop- 
ment should  go  to  the  public. 

In  those  states  in  which  the  energy  of  falling  water  has 
been  given  through  legislative  enactment  or  judicial  decision 
to  the  riparian  owners,  the  problem  of  water  power  control 
is  more  difficult.  In  such  instances  one  way  to  secure  con- 
trol by  the  public  would  be  to  condemn  privately  owned 
water  powers,  and  after  such  condemnation  have  them  oper- 
ated as  public  utilities. 


statutes. 


CHAPTER  III 
THE   LAWS    REGARDING    COOPERATION  ^ 

Section  1 
ENGLAND 

In  England,  in  the  time  of  Edward  VI,  a  very  strict  statute 
was  passed  by  Parliament  against  "forestalling,  enhancing, 
regrating,  and  engrossing."  Without  going  into  details  the 
things  prohibited  by  these  laws  were  roughly  as  follows :  Early  rigid 
Forestalling  was  the  offense  of  going  out  on  the  road  and 
buying  merchandise  which  was  coming  to  the  market,  with 
the  intention  of  selling  at  a  higher  price  upon  its  arrival. 
This  applied  especially  to  wheat,  or  as  it  is  called  in  England, 
corn.  Enhancing  defines  itself ;  it  applied  to  buying  a  prod- 
uct, one  of  the  necessities  of  life,  with  the  intention  of  selling 
again  at  an  increased  price.  Regrating  was  the  offense  of 
going  into  the  market  and  buying  products  in  a  greater  quan- 
tity than  needed  for  consumption  with  the  intention  of  selling 
in  the  same  market  at  a  higher  price.  Engrossing  was  buy- 
ing corn  growing,  or  any  other  corn,  butter,  cheese,  fish,  or 
other  dead  victual,  with  intent  to  sell  the  same  again.  Under 
these  old  laws  transactions  were  prohibited  which  raised  the 
price  of  an  essential  article.  Many  of  the  regulations  went 
so  far  as  to  fix  prices. 

While  at  this  time  these  offenses  were  made  statutory,  they 
apparently  had  been  offenses  against  the  common  law  at 
a  much  earlier  date.  Indeed,  so  far  as  we  can  ascertain,  the 
common  law  in  the  Middle  Ages  was  very  strict  against  com- 
binations in  restraint  of  trade,  as  well  as  against  regrating, 

1  For  full  information  concerning  this  part  of  the  subject,  see  Eddy  on 
Combinations,  Callaghan  &  Co.,  1901 ;  Noycs  on  Intercorporate  Relations, 
Little,  Brown  &  Co.,  1902 ;  Wyman  on  Control  of  the  Market,  Moffat,  Yard 
&  Co.,  1911,  and  Jenks  Report  of  the  Industrial  Commission,  Vol.  II. 

167 


168    CONCENTRATION  AND  CONTROL 

forestalling,  and  engrossing.  Since  the  statutes  were  found 
to  have  a  tendency  to  prevent  free  trade  and  to  enhance  the 
price  of  essential  commodities,  they  were  repealed  during  the 
reign  of  George  III.  Notwithstanding  this  fact  some  of  the 
judges  held  that  the  common  law  against  these  offenses  still 
existed  and  penalties  were  imposed  for  them.  In  order  to 
clarify  the  situation,  in  1844,  Parliament  definitely  abolished 
the  offenses  of  badgering,  engrossing,  forestalling,  and  regrat- 
ing,  for  Great  Britain  as  a  whole,  and  repealed  a  large  number 
of  acts  which  had  been  passed  prohibiting  restraint  of  trade. 
The  repealed  acts  included  those  which  required  foods  to  be 
sold  at  reasonable  prices,  which  allowed  justices  of  the  peace 
to  fix  the  rate  of  wages  of  laborers,  various  statutes  fixing  the 
prices  of  different  articles,  and  finally  acts  which  prevented 
men  from  engaging  in  allied  lines  of  business,  such  as  not 
permitting  "an  hostler  to  make  horse  bread,"  and  prohibiting 
a  butcher  from  being  a  grazer.  Thus,  at  one  stroke  Parlia- 
ment repealed  the  statute  laws  against  restraint  of  trade. 
This  repealing  act  guarded  against  fraudulent  or  unfair  prac- 
tices by  adding  the  following  clause  :  — 

"Provided  always  and  be  it  enacted,  that  nothing  in  this 
act  contained  shall  be  construed  to  apply  to  the  offense  of 
knowingly  and  fraudulently  spreading  or  conspiring  to  spread 
any  false  rumor,  with  intent  to  enhance  or  decry  the  price 
of  any  goods  or  merchandise,  or  to  the  offense  of  preventing 
or  endeavoring  to  prevent  by  force  or  threats  any  goods  or 
wares,  or  merchandise  being  brought  to  any  fair  or  market, 
but  that  every  such  offense  may  be  punished  as  if  this  act 
had  not  been  made." 

Combination  in  trade  may  be  defined  as  the  cooperation  of 
two  or  more  persons,  partnerships,  or  corporations  to  achieve 
a  given  result.  According  to  Eddy  ^  the  purposes  of  combi- 
nation are  to  reduce  the  cost  of  producing  and  marketing 
products,  to  control  prices,  and  to  discourage  and  if  possible 
to  suppress,  competition.  Since  1844,  the  law  in  England 
has  permitted  combination  in  all  commodities  including  the 
essentials  of  life  even  if  the  purpose  of  the  same  were  to 

1  Eddy  on  Combinations,  Vol.  I,  Sections  167,  176,  184. 


THE  LAWS   REGARDING   COOPERATION     169 

enhance  the  price.  Any  combination  is  permitted  which 
does  not  involve  immoral,  milawful,  and  oppressive  acts,  is  Law  peiv 
not  contrary  to  public  policy,  and  does  not  go  to  the  ex-  ™oration." 
tent  of  monopoly.  Magnitude  alone  does  not  make  a  com- 
bination illegal ;  but  monopoly  is  prohibited  in  order  to 
retain  competition.  It  is  realized  in  England  that  "com- 
petition has  it  disadvantages  as  well  as  its  advantages,  and 
may  be  the  death  as  well  as  the  life  of  trade."  ^ 

In  England  also  in  early  times  the  common  law  restrictions 
were  very  severe  upon  contracts  in  restraint  of  trade.     By 
contract  in  restraint  of  trade  is  meant  any  contract  "  whereby 
any  party  binds  himself  to  not  follow  some  particular  occupa- 
tion, trade,  calling,  or  profession,  or  engage  in  some  particular 
business  or  enterprise  for  a  period  within  a  particular  terri- 
tory." 2     Gradually  the  rigidity  of  the  early  rule  forbidding 
contracts  in  restraint  of  trade  was  modified,  so  that  in  England  Early  limi- 
at  the  present  time  whether  contracts  in  restraint  of  trade  are  contracts^ 
lawful  is  dependent  upon  their  reasonableness.     They  may  be  removed, 
sustained  even  if  they  be  indefinite,  both  as  to  time  and 
place ;  but  such  contracts  to  be  la'vvful  are  to  be  supported 
by  a  consideration,  are  to  be  essential  to  the  protection  of 
the   legitimate  interest   of   the  contractees,   and   must   be 
reasonable.^ 

The  above  statement  shows  that  at  the  present  time  the 
laws  have  so  developed  in  England  that  there  is  freedom  to 
combine  in  trade  to  any  extent,  provided  that  the  combina- 
tion is  not  immoral,  unlawful,  or  oppressive,  is  not  contrary  Freedom  to 
to  public  policy,  and  is  not  a  monopoly.     Thus  there  is  free-  ^nd  freedom 
dom  to  combine  in  trade  as  well  as  freedom  to  compete.     This  to  compete, 
great  policy  is  in  accordance  with  the  principle  of  laissez 
faire  which  for  many  years  has  had  such  a  vast  influence  in 
England.     It  is  a  very  radical    departure  from  the  early 
decisions  under  the  common  law  and  the  policies  of  the  old 
statutes.      As  we  shall  see,  freedom  for  combination  as  well 
as  freedom  for  competition  has  had  a  very  far-reaching  influ- 
ence upon  the  development  of  trade  in  the  United  Kingdom. 

1  Eddy  on  Combinations,  Vol.  I,  Section  308. 

» Ibid.,  Section  688.  '  j^j^.^  Section  713. 


170 


CONCENTRATION   AND  CONTROL 


Section  2 


THE  UNITED   STATES 


Partial  con- 
tracts in 
restraint 
allowed. 


Principles 
limiting 
combina- 
tions. 


The  laws  of  England  regarding  trade,  both  common  and 
statute,  were  brought  over  to  this  country;  and  here  they 
have  gone  through  the  same  stages  of  development  as  in 
Great  Britain. 

The  statute  laws,  originally  severe,  were  gradually  amelio- 
rated and  finally  wiped  out.  The  common  law  regarding  con- 
tracts and  combination  in  restraint  of  trade  went  through 
the  same  stages  of  development  as  in  England,  until  finally 
they  permitted  combination  and  contracts  which  were 
reasonable.  The  purposes  of  contracts  may  be  to  restrain 
trade,  to  suppress  competition,  or  to  control  the  market.  It 
has  been  held  that  contracts  in  restraint  of  trade  which  go 
to  the  extent  of  the  entire  United  States  for  an  unlimited 
time  are  unreasonable.  Contracts  in  partial  restraint  of 
trade,  such  as  not  to  use  a  trade  in  a  particular  place  for  a 
definite  term,  if  founded  on  a  good  consideration  and  for 
a  proper  and  useful  purpose,  were  valid ;  and  they  were  so 
even  if  an  entire  state  was  comprised  by  the  contract. 

The  limits  of  the  combinations  which  were  permitted  are 
given  in  general  terms  by  Noyes  ^  as  follows :  — 

"  (1)  Any  combination  of  corporations  or  individuals  the 
object  of  which  is,  or  the  necessary  or  natural  consequence 
of  the  operation  of  which  will  be,  the  control  of  the  market 
for  a  useful  commodity,  is  against  public  policy  and  un- 
lawful. 

"  (2)  Any  combination  of  quasi-public  corporations,  the 
object  of  which  is,  or  the  necessary  or  natural  consequence 
of  the  operation  of  which  will  be,  the  increase  of  charges  be- 
yond reasonable  rates,  or  the  curtailment  of  facilities  afforded 
the  public,  is  against  public  policy  and  unlawful." 

Under  the  above  principles  the  following  have  been  held 
to  be  lawful,  viz.,  combinations  which  had  for  their  object 
maintenance  of  a  fair  price,  union  of  rival  manufacturers, 


^  Noyes  on  Intercorporate  Relations,  Section  352. 


THE   LAWS   REGARDING   COOPERATION     171 

agreements  in  selling  price  or  division  of  profits,  and  ex-  Extent  of 
elusive    trade    agreements.     Even    if    such    combinations  ^^n^o^^,gj 
tended  to  raise  the  price  of  a  commodity,  they  were  lawful. 
Also,  agreements  to  remove  a  rival  from  the  field  are  legal 
unless  they  result  in  monopoly.^ 

From  actual  cases  which  have  been  considered  by  the 
courts,^  Eddy  gives  the  following  statement  regarding  the  tia- 
ture  of  combinations  which  were  permitted  before  the  stat- 
utes of  recent  years  were  passed :  — 

"  Combination  to  control  competition  is  legal  where  op- 
pressive monopoly  is  not  intended,"  —  "  Combination  by 
consoUdation  of  competing  companies,  by  the  formation  of 
a  new  corporation  to  take  over  the  assets  of  the  compet- 
ing companies,  the  object  being  to  diminish  competition,  is 
legal." —  "  Combination  among  individuals  by  the  forma- 
tion of  a  partnership  to  handle  produce  or  merchandise  and 
control  competition  in  a  given  market  is  legal  where  no  fraud 
or  deception  is  practiced." —  "  Combinations  among  com- 
petitors, thei)bject  of  which  is  to  realise  a  fair  price  for  the 
goods  manufactured  and  sold,  do  not  contravene  any  rule  of 
public  pohcy,  even  though  they  operate  in  some  respects  as 
in  restraint  of  trade." —  "  Combination  of  all  competitors  illustrations 
to  control  trade  and  prices  by  formation  of  new  corporation  °/  combma- 
to  take  entire  product  and  act  as  exclusive  selling  agent  is 
legal."  —  "  Combination  by  voluntary  association  among 
competitors  for  the  purpose  of  suppressing  ruinous  competi- 
tion and  establishing  better  prices  through  the  appointment 
of  an  exclusive  selling  agent  and  a  supervisory  committee, 
held  legal." —  "Combination  to  prevent  competition  by 
subsidizing  competitor  is  legal." —  "  Combination  to  sup- 
press competition  by  means  of  contracts  with  independent 
manufacturers  for  their  entire  products  is  not  illegal  so  long 
as  there  is  not  a  conspiracy  to  monopolize  the  market."  — 
"  Combination  of  workmen  for  protection  and  to  increase 
wages  is  legal ;  so  also  is  the  combination  of  common  carri- 
ers to  guard  against  undue  competition  and  the  reducing  of 

1  Eddy  on  Combinations,  Vol.  I,  pp.  124-127. 
*  Ibid.,  Chapter  7,  pp.  131-198. 


172  CONCENTRATION   AND  CONTROL 

freights  below  a  fair  compensation." —  "Combinations 
between  individuals  or  firms  for  the  regulation  of  prices, 
and  of  competition  in  business,  are  not  monopolies,  and  are 
not  unlawful  as  in  restraint  of  trade,  so  long  as  they  are 
reasonable  and  do  not  include  all  of  a  commodity  or  trade, 
or  create  such  restrictions  as  to  materially  affect  freedom  of 
commerce."  —  "  An  agreement  between  a  number  of  per- 
sons to  act  concertedly  in  fixing  prices  at  which  they  will 
sell  a  particular  commodity  in  a  particular  city  is  not  illegal 
as  being  in  restraint  of  trade  unless  it  appears  that  they 
have  a  monopoly  of  that  commodity."  —  "I  know  of  no 
rule  of  law  ever  having  existed  which  prohibited  a  certain 
number  (not  all)  of  the  producers  of  a  staple  commodity 
agreeing  not  to  sell  below  a  certain  price. "  ^ 

The  general  principle  regarding  contracts  in  restraint  of 
trade  was  admirably  stated  by  Justice  Guthrie  as  follows  i^ 
"  That  all  contracts  in  partial  restraint  of  trade  are  not  void 
as  against  public  policy  is  too  well  settled  to  be  gainsaid; 
while,  on  the  other  hand,  it  is  as  fully  established,  as  a 
general  rule,  that  contracts  in  general  restaint  of  trade  are 
against  public  policy  and,  therefore,  absolutely  void." 

While  combinations  and  contracts  in  restraint  of  trade 
are  permitted  in  England  to  a  large  degree  and  were  permitted 
Freedom  for  in  America  to  a  similar  extent  under  the  common  law,  in 
t?tion°™^'^"  ^^o^h  countries  it  is  a  fundamental  principle  that  there  must 
be  freedom  for  fair  competition.  Contracts  must  not  be 
tainted  with  fraud,  against  public  policy,  or  contrary  to  the 
statutes.  All  claims  on  the  part  of  any  person  or  partner- 
ship to  have  the  exclusive  right  or  monopoly  in  any  business 
have  universally  been  denied  the  protection  of  the  law, 
whether  such  exclusive  privilege  was  claimed  as  a  general 
right  or  because  of  a  contract.  Moreover,  freedom  of  com- 
petition under  the  common  law  has  not  been  allowed  to  go  to 
the  point  of  establishing  business  to  injure  a  person  through  a 
malicious  purpose,  nor  so  far  as  to  allow  the  breaking  of  one 
contract  to  make  another  on  more  advantageous  terms.     If 

1  Eddy  on  Combinations,  Vol.  I,  Sections  270,  271,  272,  276,  277,  278,  280, 
281,  282,  313,  315,  and  316,  2  35  Qhio  State,  666. 


THE  LAWS   REGARDING   COOPERATION     173 

fraud  be  used  in  competition,  it  is  illegal ;  as,  for  instance,  the 
misleading  use  of  a  firm  name.  A  company  manufacturing 
watches  in  Waltham  was  not  allowed  to  call  the  same  Wal- 
tham  watches,  since  this  was  a  well-known  manufacture  of  a 
previously  established  company.  Libelous  statements  may 
not  be  used  to  secure  business.  Intimidation  or  coercion  to 
secure  trade  or  to  compel  exclusive  employment  of  a  certain 
class,  such  as  the  members  of  a  business,  has  not  the  pro- 
tection of  the  common  law. 

Since  by  reference  to  Eddy  the  very  numerous  cases  in 
which  combinations  in  restraint  of  trade  have  been  per- 
mitted in  this  country  under  common  law  may  be  easily 
found,  they  are  not  here  repeated.  There  will  be  mentioned 
a  few  cases  showing  how  far  contracts  in  restraint  of  trade 
have  been  permitted. 

In  New  Jersey  a  contract  not  to  manufacture  anywhere  in 
the  United  States  except  in  Nevada  and  Arizona  for  fifty 
years  was  held  to  be  valid  so  far  as  the  state  of  New  Jersey 
was  concerned.^  In  New  York  a  contract  not  to  engage  in 
the  manufacture  of  matches  for  ninety-nine  years  except  in 
the  state  of  Nevada  and  the  territory  of  Montana  was  held 
to  be  partial  and  not  general  restraint  of  trade,  and  there- 
fore valid.2  In  another  case  in  that  state  it  was  held  that 
a  contract  under  which  a  steamboat  company  paid  another 
company  not  to  run  a  competing  line  of  steamboats  was 
vaUd  on  the  ground  that  it  may  be  a  benefit  to  keep  com- 
petition from  becoming  too  strong.' 

While  it  is  clear  under  the  common  law  in  this  country 
that  there  was  great  liberality  regarding  combination  and 
contracts  in  restraint  of  trade,  when  such  contracts  and  com- 
binations affected  partnerships  or  corporations,  they  were 
uniformly  declared  to  be  illegal.^ 

Here  falls  the  famous  case  of  the  People  v.  the  North 
River  Sugar  Refining  Company  under  which  the  shares  of 
the  capital  stock  of  the  constituent  companies  were  trans- 
ferred to  a  board  of  trustees.      This  was  the  case  in  which 

>  56  N.  J.  Eq.  680.  »  106  N.  Y.  473.  '  110  N.  Y.  519. 

*  121  111.  530;  58  S.  W.  Rep.  853;  86  Tenn.  598. 


174    CONCENTRATION  AND  CONTROL 

the  trust  was  first  brought  before  the  court.  Speaking  of 
the  trust,  Justice  Barrett  of  the  circuit  court  says  that  the 
acts  of  this  trust  are  unlawful  for  two  reasons:  "1.  They 
constitute  the  corporation  a  partner  and  a  corporation  is 
not  allowed  by  law  to  enter  into  partnership.  2.  Any  com- 
bination, the  tendency  of  which  is  to  prevent  competition 
in  its  broad  and  general  sense  and  to  control,  and  thus  at 
will  enhance  prices  to  the  detriment  of  the  public,  is  a  legal 
monopoly,  and  is  against  public  interest."  Justice  Finch, 
of  the  court  of  appeals,  declared  "  that  defendant  corpora- 
tion has  violated  its  charter  and  failed  in  the  performance 
of  its  corporate  duties,  and  that  in  respects  so  material  and 
important  as  to  justify  a  judgment  of  dissolution."  ^ 

Under  this  principle  the  Standard  Oil  Trust  of  Ohio  was 
declared  to  be  illegal.^  In  this  case  the  action  of  the  cor- 
poration was  held  to  be  ultra  vires,  against  public  poHcy, 
and  therefore  ground  for  the  forfeiture  of  the  charters  of  the 
offending  companies.  Apparently  in  this  decision  was  also 
the  element  of  monopoly  since  Justice  Minshall  declared 
that  under  the  trust  form  of  combination  "  by  the  invari- 
able laws  of  human  nature,  competition  will  be  excluded 
and  prices  controlled  in  the  interest  of  those  connected  with 
the  combination  or  trust." 

Numerous  cases  could  be  cited  which  have  declared  combi- 
nations which  go  to  the  extent  of  monopoly  to  be  contrary 
to  pubhc  pohcy  as  intending  to  control  the  market,  but 
the  principle  is  so  well  known  that  details  will  not  be  given.^ 

Section  3 

THE   SHERMAN  ANTITRUST  LAW  ^ 

The  law  as  above  described  in  Section  2  for  this  country 
was  a  natural  development  under  which  the  law  conforms 
to  the  conditions  of  trade.     Large  liberty  was  permitted. 

1  121  N.  Y.  582.  ^  49  Ohio  State  131,  1892. 

3  139  N.  Y.  105;  145  N.  Y.  267;  47  Ohio  320;  111  Pa.  473;  77  Mich.  632. 

^  For  the  full  text  of  the  law  see  Appendix  I.  Many  discussions  of  the 
Sherman  antitrust  act  and  its  influence  on  law  and  trade  have  been  pub- 
lished.    Some  of  the  more  enlightening  are  the  following:    !'The  Federal 


of   Sherman 
act. 


THE  LAWS  REGARDING   COOPERATION     175 

Suddenly,  in  1890,  a  new  policy  was  introduced  by  statute  Sudden 
law,  the  principle  of  which  was  to  go  back  to  severe  restric-  ^^q^^T  ° 
tions  regarding  trade,  not  so  severe  as  in  the  Middle  Ages  in 
England,  but  far  in  that  direction.  This  policy  was  in- 
augurated by  the  Sherman  antitrust  law.  Combinations 
of  the  kind  above  mentioned  and  which  before  had  been 
regarded  as  legitimate  were  by  congressional  act  for  inter- 
state commerce  declared  to  be  unlawful.  The  Sherman  act 
clearly  stated  that  restraint  of  trade  in  any  degree  is  ille- 
gal. How  marked  is  the  contrast  between  this  law  and  the  Provisions 
previously  existing  common  law  is  shown  by  the  following 
summary  of  its  important  provisions. 

Sections  1  and  3  of  the  Sherman  act  make  "  every  contract, 
combination  in  the  form  of  trust  or  otherwise,  or  conspiracy 
in  restraint  of  trade  or  commerce"  illegal.  This  provision 
applies  as  among  the  several  states  and  territories,  the  Dis- 
trict of  Columbia,  and  foreign  countries ;  as  between  per- 
sons, corporations,  and  associations  engaged  in  interstate 
commerce ;  and  as  between  one  of  any  of  these  groups  with 
any  member  of  another  group,  except  contracts  between  two 
foreign  countries. 

Section  2  provides  that  "  every  person  who  shall  monopo- 
lize, or  attempt  to  monopolize,  or  combine  or  conspire  with 
any  other  person  or  persons,  to  monopolize  any  part  of  the 
trade  or  commerce  among  the  several  states,  or  with  foreign 
countries,  shall  be  deemed  guilty  of  a  misdemeanor."  Thus 
the  law  forbids  both  restraint  of  trade  and  monopoly  or 
attempt  at  monopoly.  Violation  of  an}^  of  the  above  pro- 
visions of  the  act  is  made  a  misdemeanor  and  is  punishable 
by  a  fine  not  exceeding  $5000,  or  imprisonment  not  exceed- 
ing one  year,  or  by  both. 

Section  7  provides  that  any  person  who  is  "  injured  in 

Antitrust  Act,"  Robert  L.  Raymond,  Harvard  Law  Review,  Vol.  XXIII,  pp. 
353-379 ;  "  The  Standard  OU  and  Tobacco  Cases,"  Robert  L.  Raymond, 
Harvard  Law  Review,  Vol.  XXV,  pp.  31-58;  "Antitrust  Legislation  and 
Litigation,"  annual  address  before  the  American  Bar  Association,  Boston, 
1911,  by  William  B.  Hornblower  ;  "  Recent  Interpretation  of  the  Sherman 
Act,"  George  W.  Wickersham,  Michigan  Law  Review,  Vol.  X,  pp.  1-25, 
Hearings,  Senate  Interstate  Commerce  Committee,  Albert  H.  Walker,  Part 
XIX,  pp.  1537-1571,  and  Victor  Morawetz,  Ibid.,  pp.  1629-1642. 


176    CONCENTRATION  AND  CONTROL 

his  business  or  property  by  any  other  person  or  corporation 
by  reason  of  anything  forbidden  or  declared  to  be  unlawful 
by  this  act  .  .  .  shall  recover  threefold  the  damages  by 
him  sustained  and  the  cost  of  suit  including  reasonable 
attorney's  fee." 

Other  sections  of  the  Sherman  law  provide  for  instituting 
proceedings  by  the  Attorney-General  of  the  United  States 
and  the  conduct  of  cases  by  the  court. 

Amendments  to  the  Sherman  law  have  extended  the 
inhibition  of  combinations  to  importers,  and  have  given 
cases  which  arise  under  the  law  precedence  over  others. 
While  the  act  is  called  the  Sherman  antitrust  law  because 
introduced  by  Senator  Sherman,  it  was  more  largely  written 
by  Senator  Edmunds  than  any  other  one  man,  although 
some  clauses  were  based  upon  drafts  by  Senator  Sherman 
and  other  clauses  were  written  by  Senators  Hoar  and  Ingalls.^ 

The  Sherman  antitrust  act  has  now  been  on  the  statute 
Early  books  for  twenty-two  years,  and  many  cases  have  been  de- 

decisions.  cidcd  under  it.  Some  of  the  early  decisions  were  of  a  kind 
which  gave  little  promise  of  the  effectiveness  of  the  law. 

Thus  in  1890  some  seventy  distilleries  united,  capable  of 
producing  77,000,000  gallons  of  whisky.  Their  output  was 
three  fourths  of  that  of  the  United  States.  The  combina- 
tion approached  if  it  did  not  reach  monopoly.  The  distil- 
leries were  located  in  different  states.  The  products  were 
shipped  into  states  other  than  those  in  which  the  distilleries 
were  located.  It  was  held  by  the  court  that  these  acts  did 
not  constitute  an  unlawful  agreement  under  the  antitrust 
act.2  Again  it  was  held  to  be  a  legal  act  for  two  or  more 
traders  to  agree  among  themselves  that  they  will  not  deal 
with  those  who  purchase  goods  of  any  designated  traders  in 
the  same  business.^  An  agreement  to  make  exclusive  pur- 
chases from  a  dealer  with  the  provision  that  this  would  en- 
title the  purchaser  to  a  rebate  if  the  agreement  was  carried 
out,  was  held  not  to  violate  the  law.* 

When  dealers  in  lumber  in  different  towns  and  cities  of 

1  Hearings,  Senate  Interstate  Commerce  Committee,  XXVI,  pp.  2422- 
2431.  2  61  Fed.  205.  ^  65  Fed.  851.  *  51  Fed.  213. 


sioii  discon- 
certing. 


THE   LAWS   REGARDING   COOPERATION     177 

the  states  of  Wisconsin,  Minnesota,  Iowa,  Illinois,  and  Mis- 
souri agreed  to  raise  the  price  of  lumber  fifty  cents  per  Early  deci- 
thousand  feet  in  advance  of  the  regular  market  price  of  pine 
lumber,  it  was  held  that  the  agreement  did  not  necessarily 
raise  the  price  generally  and  that  the  combination  to  come 
under  the  statute  must  be  such  that  the  members  of  the  com- 
bination through  the  combination  controlled  the  price  of  the 
entire  output.^  In  other  words,  if  the  combination  was  not 
such  as  to  introduce  the  element  of  monopoly,  it  was  not 
illegal. 

Even  more  important  than  this  case  was  that  of  the  Ameri- 
can Sugar  Refining  Company.  This  corporation,  organized 
under  the  laws  of  New  Jersey,  secured  control  of  four  Phila- 
delphia refineries,  thus  gaining  practical  monopoly  of  the 
business.  It  was  held  by  the  court  that  monopoly  in  the 
manufacture  of  an  article  necessary  to  life  is  not  interstate 
commerce,  and  that  combinations  which  restrain  interstate 
commerce  indirectly  are  not  under  the  ban  of  the  law.^  This 
decision  was  all  the  more  disconcerting  because  the  manu- 
facturers who  combined  were  located  in  different  states. 
While  the  decision  did  not  say  so,  it  was  supposed  that  manu- 
facturers in  different  states  could  combine  and  the  company 
afterwards  dispose  of  the  products  without  reference  to  state 
lines.  Apparently  this  was  not  the  intention  of  the  decision, 
or  if  so  it  was  reversed  by  later  decision. 

The  Kansas  City  Live  Stock  Exchange  was  a  voluntary 
association  doing  business  in  Kansas  and  Missouri.  The 
business  was  essentially  that  of  a  selling  agency  for  cattle. 
The  association  had  very  strict  rules  regarding  the  methods  of 
dealing  of  its  members  and  also  rules  forbidding  members  of 
the  exchange  from  buying  of  non-members.  In  this  case  it 
was  held  that  the  effect  of  the  agreement  in  restraining  in- 
terstate commerce  was  only  indirect  and  therefore  not  under 
the  ban  of  the  act.^ 

The  Traders'  Live  Stock  Exchange,  which  at  the  Kansas 
City  yards  bought  live  stock  coming  from  more  than  one 

1  U.  S.  V.  Nelson,  52  Fed.  646. 

»  U.  S.  V.  E.  C.  Knight  Co.,  156  U.  S.  1.  »  171  U.  S.  78. 

N 


178 


CONCENTRATION  AND  CONTROL 


Reasonable 
and  unrea- 
sonable im- 
material. 


state,  differed  from  the  above  exchange  in  that  cattle  were 
bought  and  sold.  The  members  of  the  Traders'  Exchange 
cooperated  under  strict  rules  as  to  the  method  of  conducting 
their  business,  among  which  was  the  provision  that  the  ex- 
change would  not  recognize  any  trader  who  was  not  a  mem- 
ber. The  undoubted  effect  of  the  arrangement  was  coopera- 
tion in  prices  and  in  other  ways  in  buying  and  selling.  In 
this  case,  it  was  held  that  if  there  was  restraint  of  trade,  it 
was  not  direct,  but  only  an  indirect  result  of  the  operation 
of  the  association ;  and  that  the  business,  all  being  done  in 
Kansas  City,  was  intrastate  rather  than  interstate  commerce, 
although  the  cattle  came  from  more  than  one  state. ^ 

While  the  above  decisions  seemed  to  promise  little  for  the 
effectiveness  of  the  Sherman  act,  even  in  early  years  there 
were  other  decisions  which  looked  toward  its  effectiveness. 
Thus,  combinations  fixing  price  and  contracts  for  exclusive 
dealing  were  declared  to  be  in  restraint  of  trade,^  also  all 
the  earlier  decisions  held  that  whether  the  restraint  of  trade 
was  reasonable  or  unreasonable  was  immaterial.^ 

The  more  important  of  these  decisions  were  the  Trans- 
Missouri  *  and  the  \  Joint  Traffic  ^  cases.  In  the  Trans- 
Missouri  case,  Justice  Peckham  said  it  is  "urged  that  the 
statute  in  declaring  illegal  every  combination  in  the  form  of 
trust  or  otherwise,  or  conspiracy  in  restraint  of  trade  or  com- 
merce, does  not  mean  what  the  language  used  therein  plainly 
imports,  but  that  it'  only  means  to  declare  illegal  any  such 
contract  which  is  in  unreasonable  restraint  of  trade  while 
leaving  all  others  unaffected  by  the  provisions  of  the  act." 
With  this  view  the  court  disagreed,  and  held  that  all  combina- 
tions in  restraint  of  trade  without  exception  or  limitation  are 
prohibited  by  the  act.  This  was  a  bare  majority  decision. 
In  the  same  case  it  was  held  that  the  Sherman  act  applies  to 
railways  and  other  public  utilities  as  well  as  to  industries. 
In  the  Joint  Traffic  case  the  same  justice  shaded  this  sweeping 
decision  somewhat,  by  saying,  "The  act  of  Congress  must 


»  171  U.  S.  604.  *  432  Fed.  898. 

»85  Fed.  252;  115  Fed.  610;  166  Fed.  290;  167  Fed.  721. 
*  166  U.  S.  327.  *  171  U.  S.  566. 


THE   LAWS   REGARDING   COOPERATION      179 

have  a  reasonable  construction,"  and  he  indicated  in  his  opin- 
ion that  certain  combinations  were  not  necessarily  inhibited 
by  the  act. 

The  decisions    under    the    Sherman   act  have  uniformly 
held  that  exchanges  and  selling  agencies  and  combinations, 
where  the  commerce  was  clearly  interstate,  which  fix  prices,   Combina- 
divide  territories  or  business,  or  limit  output,  are  illegal.^   m^tt^^by 
This  statement  is  slightly  modified  by  a  decision  ^  concern-  common 
ing  a  boat  company  which  sold  to  another  company  with  ^*^  illegal, 
the  agreement  not  to  do  business  between  Cincinnati  and 
Portsmouth  for  five  years  after  the  sale.     This  agreement 
was  held  to  be  valid. 

In  the  case  of  an  agreement  between  a  number  of  manu- 
facturers to  market  their  entire  output  through  a  selling 
agency  at  specified  prices,  it  was  held  that  a  selling  agency 
organized  to  control  all  the  business  of  the  manufacturers 
was  in  restraint  of  trade  and  contrary  to  law.  Combinations  Selling 
of  companies  for  the  purpose  of  preventing  others  from  enter-  ^f^^g^'^^ 
ing  a  business  are  in  restraint  of  trade.^ 

All  combinations  which  have  been  shown  to  have  the  ele- 
ment of  monopoly,  or  agreements  which  attempt  to  produce 
monopoly,  have  been  declared  to  be  illegal.     This  principle 
has  been  applied  not  only  to  industry,  but  to  transportation, 
both  boats  and  railways.     While  the  decisions  have  been  Mere  size 
uniformly  against  monopoly,  it  has  been  decided  that  mere   constitute 
size  does  not  constitute  monopoly.^    Unfair  practices,  the  monopoly, 
aim  of  which  was  to  drive  from  business  and  thus  secure 
monopoly,  are  illegal.^ 

The  antitrust  act  forbids  combinations  of  labor  in  re- 
straint of  commerce  as  much  as  it  does  combinations  of 
capital.  For  laborers  to  interfere  with  interstate  commerce 
is  illegal  under  the  act.  It  is  illegal  for  an  organization  to 
attempt  to  compel  an  establishment  to  employ  none  but 
union  men.  Boycotts  have  been  declared  to  be  illegal.  It  Act  applies 
is  immaterial  whether  the  persons  who  combine  in  a  boycott 

» 175  U.  S.  211 ;  196  U.  S.  375 ;  203  U.  S.  390 :  212  U.  S.  227. 

«  200  U.  S.  179.  3  209  U.  S.  423. 

<  172  Fed.  455.  '  193  U.  S.  38 ;  196  U.  S.  375. 


180 


CONCENTRATION   AND   CONTROL 


Legality  of 

holding 

company. 


Word  "rea- 
sonable " 
introduced 
into  statute 
by  decision. 


are  themselves  engaged  in  interstate  commerce.^  As  illus- 
trating these  principles  may  be  cited  the  award  of  $222,000 
against  the  striking  hatters  of  Danbury,  Connecticut,  same 
being  against  about  two  hundred  working  men.^ 

Of  the  more  important  decisions  which  have  laid  down 
broad  principles  affecting  the  future  interpretation  of  the 
Sherman  act  the  following  may  be  mentioned  :  — 

The  Northern  Securities  Company  *  was  a  holding  com- 
pany, possessing  all  or  the  majority  of  the  stock  of  several 
railroads.  This  company  was  declared  to  be  in  retraint  of 
trade.  The  decision  was  rendered  comparatively  early,  and 
the  question  of  reasonable  or  unreasonable  restraint  of  trade 
was  held  to  be  immaterial.  This  decision,  like  the  Trans- 
Missouri  and  Joint  Traffic  decisions,  was  by  a  five  to  four 
vote. 

While  Justice  Brewer  was  with  the  majority,  he  dissented 
from  the  opinion  given  by  Justice  Peckham  already  cited 
that  every  contract  or  combination  in  restraint  of  trade  was 
within  the  statute.  This  decision  is  of  far-reaching  impor- 
tance, in  that  it  appears  to  raise  a  doubt  as  to  the  legality 
of  the  great  holding  companies. 

Recently  there  have  been  broad  decisions  declaring  the 
Standard  Oil,  the  American  Tobacco,  and  the  Dupont  Powder 
Companies  to  be  illegal  combinations. 

As  has  already  been  pointed  out,  the  earlier  decisions  of 
the  Supreme  Court,  under  the  first  section  of  the  Sherman  act, 
insisted  that  the  reasonableness  or  unreasonableness  of  the 
restraint  was  immaterial ;  and  in  this  position  the  court  fol- 
lowed the  literal  statement  of  the  law  as  it  looked  to  Peck- 
ham  and  as  it  still  looks  to  a  layman.  The  interpretations 
of  the  act  in  the  cases  of  Standard  Oil  and  American  Tobacco 
shows  a  change  in  the  position  of  the  court.  In  the  future 
it  will  declare  only  business  to  be  interdicted  by  the  act  which 
is  in  undue  restraint  of  trade.     The  second  and  third  sec- 


I 54  Fed.  994 ;   208  U.  S.  274. 

*  Hearings,  Interstate  Commerce  Committee,  XX,  pp.  1729-1730.  For 
full  presentation  of  the  two  sides  of  the  Sherman  act  as  applied  to  laborers 
see  Hearings,  Senate  Interstate  Commerce  Committee,  XX,  pp.  1727—1778; 
XXIII,  XXIV,  pp.  1979-3102.  »  120  Fed.  72. 


common  law 
principle. 


THE   LAWS   REGARDING   COOPERATION     181 

tions  of  the  Sherman  act  are  apparently  interpreted  together. 
It  seems  to  be  the  argument  that  the  first  section,  prohibiting 
all  combinations  and  contracts  in  restraint  of  trade,  is  meant 
to  cover  the  same  ground  as  the  second  section,  which  pro- 
hibits monopoly  or  attempt  to  monopolize ;  and  thus  the 
interpretation  seems  to  be  that  restraint  of  trade  which 
monopolizes  or  attempts  to  monopolize  is  interdicted  by 
the  law.  This  is  the  restraint  of  trade  which  is  undue,  and 
being  undue  is  unreasonable ;  that  is,  undue  and  unreason- 
able are  made  synonymous  terms.^ 

The  court  gives  the  opinion  that  it  was  the  intention  of 
Congress  that  "the  standard  of  reason,  which  had  been  applied  Return  to 
at  the  common  law  and  in  this  country  in  dealing  with  sub- 
jects of  the  character  embraced  by  the  statute,  was  intended 
to  be  the  measure  used  for  the  purpose  of  determining  whether 
in  a  given  case  a  particular  act  had  or  had  not  brought  about 
the  wrong  against  which  the  statute  provided."  The  court 
says,  "The  fact  must  not  be  overlooked  that  injury  to  the 
public  by  the  prevention  of  an  undue  restraint  on,  or  the  monop- 
olization of  trade  or  commerce  is  the  foundation  upon  which 
the  prohibitions  of  the  statute  rest,  and,  moreover,  that  one  of 
the  fundamental  purposes  of  the  statute  is  to  protect,  not  to 
destroy,  rights  of  property." 

Apparently  the  decision  of  the  court  goes  as  far  as  practi- 
cable towards  reintroducing  the  common  law  regarding  com- 
binations and  contracts  in  restraint  of  trade.  Combinations 
and  contracts  may  take  place  provided  they  are  reasonable ; 
but  the  sweeping  decrees  regarding  the  disintegration  of  the 
Standard  Oil  and  American  Tobacco  and  other  companies 
make  it  appear  that  it  was  not  the  intent  of  the  court  to  go 
as  far  toward  freedom  as  was  permitted  by  the  common  law. 
Thus  we  are  left  in  doubt  as  to  how  far  the  court  wdll  in  the 
future  permit  combinations  and  contracts  in  restraint  of  trade. 

The  effects  of  the  Standard  Oil  and  American  Tobacco 
decisions  upon  those  organizations  were  as  follows :  — 

The  Standard  Oil  Company.  —  The  Circuit  Court  of  the 

1  The  Supreme  Court  of  the  United  States,  No.  398,  October  term,  1910  ; 
Ibid.,  Nos.  118  and  119. 


182 


CONCENTRATION   AND   CONTROL 


Standard 
Oil  Com- 
pany a 
monopoly. 


Disintegra- 
tion of 
Standard 
Oil  Com- 
pany. 


United  States  for  the  Eastern  district  of  Missouri  on 
November  20,  1909,  declared  the  Standard  Oil  Company 
to  be  an  illegal  combination ;  that  the  officers  of  the 
Standard  Oil  Company  and  thirty-seven  constituent  com- 
panies have  combined  and  conspired  to  monopolize  and 
have  monopolized  a  substantial  part  of  the  commerce  in 
oil  among  the  states  and  in  the  territories  and  with  foreign 
nations.  The  officers  of  the  Standard  Company  were 
prohibited  from  voting  the  stock  of  the  subsidiary  com- 
panies, and  the  officers  of  the  subsidiary  companies  were 
enjoined  and  prohibited  from  paying  any  dividends  to  the 
Standard  Oil  Company,  although  they  were  not  prohibited 
from  distributing  rateably  to  the  shareholders  of  the  com- 
pany the  shares  of  the  subsidiary  companies.  The  subsidiary 
companies  were  enjoined  from  acquiring  stock  interests  in 
potentially  competitive  companies,  or  from  placing  the  con- 
trol of  any  of  the  corporations  under  a  trustee  and  making 
any  agreement,  implied  or  expressed,  as  to  the  management 
of  other  corporations,  or  to  regulate  prices,  sales,  rates  of 
transportation,  or  outputs. 

On  May  15, 1911,  this  decree  of  the  Circuit  Court  was  af- 
firmed by  the  United  States  Supreme  Court,  except  in  the 
minor  modifications  of  time  for  executing  the  decree  and  for 
continuance  of  business  during  the  time  necessary  to  carry 
out  the  decree.  The  time  for  the  dissolution  of  the  cor- 
poration was  extended  to  six  months  from  the  21st  of  June, 
1911,  and  pending  the  dissolution  the  Standard  Oil  Company 
continued  business  in  the  United  States. 

As  a  result  of  these  decisions  and  orders  the  Standard 
Oil  Company  has  now  been  broken  into  thirtyeight  com- 
panies. These  companies  are  not  to  have  common  officers  or 
directors.  The  stock  of  the  Standard  was  not  widely  dis- 
tributed and  the  new  companies  have  common  owners.  The 
officers  of  seven  of  the  more  important  new  companies  remain 
in  the  same  quarters  which  the  Standard  Oil  Company  be- 
fore occupied,  26  Broadway. 

President  Taft  has  announced  that  the  plan  of  the  adminis- 
tration in  prosecuting  trusts  is  to  secure  "  a  degree  of  disin- 


THE   LAWS   REGARDING  COOPERATION      183 

tegration  by  which  competition  between  its  parts  shall  be 

restored  and  preserved."  ^     Will  this  result  be  reached  in  the 

case  of  the  Standard  Oil  Company  ?    Will  the  officers  of  the 

seven  large  companies  indifferent  rooms  at  26  Broadway  really 

compete  in  prices  ?    That  this  will  occur  has  been  widely 

doubted  by  the  public  from  the  outset,  and  on  February  29, 

1912,  it  was  announced  that  the  Waters-Pierce  Company  of  Is  coopera- 

Texas  had  alleged  that  the  disintegrated  companies  are  com-  ^e^royed  ? 

bining,  and  this  company  had  instituted  an  investigation  in 

order  to  show  the  facts. 

Also  the  "Street"  evidently  does  not  take  the  Standard 
Oil  decision  seriously.  When  the  case  was  in  the  courts, 
the  stock  gradually  declined  and  reached  a  low  level  of 
585.  After  the  decision  was  rendered  which  finally  dis-  Oil  rising, 
solved  the  company,  Standard  Oil  stock  again  rose  until 
900  was  reached,  more  than  300  points  higher  than  when 
the  company  was  under  attack.  Apparently  the  men 
who  know  believe  that  the  decision  of  the  court  will  not 
be  sufficiently  destructive  to  reduce  the  great  profits  which 
the  Standard  has  enjoyed  and  which  will  now  go  to  the 
constituent  companies. 

The  American  Tobacco  Company.  —  On  May  29,  1911,  the 
Supreme  Court  of  the  United  States  declared  the  American 
Tobacco  Company  to  come  within  the  prohibition  of  the  first  Comprehen- 
and  second  sections  of  the  Sherman  antitrust  act.  The  com-  ordedsio^n. 
bination  of  itself  as  well  as  the  elements  composing  it,  both 
corporate  and  individual,  were  collectively  and  separately 
declared  to  be  in  restraint  of  trade  and  were  found  to  be 
attempting  to  monopolize  and  monopolizing  the  tobacco  busi- 
ness. In  order  to  carry  out  the  effect  of  this  decision  the  lower 
court  was  ordered  to  ascertain  some  plan  of  dissolving  the 
combination,  or  recreating  out  of  the  elements  a  new  condi- 
tion which  should  be  in  harmony  with  the  law.  To  accom- 
plish this  a  period  of  six  months  was  allowed.  If  at  the  end 
of  that  time  some  plan  had  not  been  devised  in  harmony  with 
the  law  for  disintegrating  the  company,  it  was  to  be  restrained 
from  engaging  in  interstate  business.     In  the  meantime,  the 

1  Speech  at  Detroit,  September  18,  1911. 


184    CONCENTRATION  AND  CONTROL 

company  was  restrained  from  enlarging  its  powers  or  extend- 
ing its  business. 

In  accordance  with  this  decree  and  order  the  Circuit  Court 
of  the  United  States  for  the  Southern  District  of  New  York, 
on  November  6,  1911,  approved  a  plan  for  disintegrating  the 
American  Tobacco  Company,  which,  as  we  have  seen,  repre- 
sented a  consolidation  of  some  two  hundred  and  fifty  corpora- 
tions into  fourteen  companies.  The  outstanding  securities, 
bonds,  preferred  and  common  stock,  of  the  American 
Tobacco  Company  were  found  to  aggregate  $223,168,250. 
The  tobacco  business,  which  was  by  far  the  larger  part 
of  the  business  of  the  company,  was  divided  among  three 
companies,  the  American  Tobacco  Company,  having  a  cap- 
italization of  $53,408,499 ;  Liggett  &  Myers  Tobacco  Com- 
pany, having  a  capitalization  of  $67,447,499 ;  and  the  P. 
Lorillard  Company,  having  a  capitalization  of  $47,552,501. 
Thus  these  three  companies  together  have  a  capitalization 
of  $168,408,409,  which  constitutes  70  per  cent  of  the  entire 
business  of  the  original  company  and  leaves  but  30  per  cent 
of  the  assets  to  be  distributed  among  the  other  eleven 
companies. 

One  small  subsidiary  company,  the  Amsterdam  Supply 
Company,  which  was  a  purchasing  agency,  was  dissolved  and 
the  assets  transferred  into  cash  and  distributed  to  the  share- 
holders. A  number  of  companies,  including  the  Conley  Foil 
Company,  the  MacAndrews  &  Forbes  Company,  the  Ameri- 
can Snuff  Company,  the  American  Stogie  Company,  and  the 
American  Cigar  Company,  each  were  required  to  divide  into 
not  less  than  two  companies  each,  or  to  convert  their  assets 
into  cash.  Further  the  restrictive  arrangements  which  had 
been  made  by  the  American  Tobacco  Company  with  foreign 
companies  were  abrogated. 

The  fourteen  companies  are  enjoined  from  cooperating  in 
business  in  any  way ;  they  must  not  occupy  the  same  offices ; 
they  cannot  hold  the  stock  of  one  another,  or  even  stock  in 
companies  in  which  other  companies  hold  stock.  Each  com- 
pany must  do  business  in  its  own  house,  and  the  products  of 
each  must  bear  the  firm  name.     For  five  years  they  are  en- 


THE   LAWS   REGARDING   COOPERATION     185 

joined  from  having  common  offices  or  directors  or  the  same 
sales  agents. 

The  stock  of  the  American  Tobacco  Company  was,  in  a 
manner  like  that  of  Standard  Oil,  distributed  proportionally 
to  his  holdings  to  each  stockholder  of  the  fourteen  com- 
panies. There  were  twentynine  men  who  held  a  dominat- 
ing position  in  the  old  corporation,  and  they  in  like  manner 
hold  a  dominating  position  in  the  three  new  companies  into 
which  the  chief  assets  of  the  old  company  have  been  divided. 

It  is  the  opinion  of  the  Attorney-General  that  the  disinte- 
gration ordered  will  accomplish  the  objects  of  the  law,  and  will 
effectually  prevent  the  recurrence  of  the  agreements  which, 
in  the  past,  have  resulted  in  a  monopolistic  situation.^      He 
says  that  "  the  natural  tendency  of  men  to  compete  with 
one  another  will  operate  and  the  fact  that  there  is  community 
of  stockholding  cannot  prevent  that  natural  tendency."  ^ 
It  appears,  however,  from  the  evidence  presented  in  this  book  is  competi- 
that  the  tendency  for  large  companies  to  cooperate  is  much   operation" 
greater  than  their  tendency  to  compete.     This  fact  has  led  the  stronger 
other  men  to  hold  views  in  sharp  contrast  with  those  of  the 
Attorney-General.     In  the  opinion  of  Mr.  Louis  Brandeis,^ 
one  of  the  counsel  for  the  independent  companies,  the  order 
to  disintegrate  the  American  Tobacco  Company  will  prove  to 
be  a  farce.     He  says  that  not  only  was  the  tobacco  business 
distributed  among  three  companies,  but  the  part  of  the  busi- 
ness which  was  assigned  to  each  company  was  such  as  to  give 
them  substantial  monopoly  for  important  lines  of  business 
assigned  to  them.     Mr.  Felix  H.  Levy,^  another  of  the  attor- 
neys of  the  independent  companies,  says  the  plan  of  disinte- 
gration "  is  a  sham  and  a  subterfuge."     Mr.  Samuel  Unter- 
meyer  ^  says,  "  They  have  simply  changed  its  clothes ;  that  A  change  of 
is  all ;  and  they  have  not  made  a  very  complete  change  at  *^  ° 
that." 

As  a  matter  of  fact,  we  now  have  fourteen  tobacco  combina- 
tions which  have  the  sanction  of  the  courts  instead  of  one  that 

*  Annual  Report  of  the  Attorney-General  of  the  United  States,  p.  6. 
«  Century  Magazine,  Vol.  LXXXIII.  No.  4,  p.  620. 

3  Hearing,  Senate  Interstate  Commerce  Committee,  Part  XVI,  pp.  1165, 
1166,  1215-1223.        *  Ibid.,  Part  VII,  pp.  287-288.       '  Ibid.,  Part  V,  p.  205. 


186    CONCENTRATION  AND  CONTROL 

did  not.  It  is  notable  that  after  the  order  was  given  by  the 
Supreme  Court  to  dissolve  the  corporation,  the  stock  of  the 
American  Tobacco  Company  fell  to  390  per  share ;  but  that 
after  the  decision  of  the  Circuit  Court  as  to  the  kind  of  disin- 
tegration which  was  to  take  place,  the  common  stock  rose  to  as 
high  a  price  as  ever  before  in  the  history  of  the  company,  with 
the  exception  of  a  single  day,  $529  per  share. ^  This  is  the  re- 
sult of  more  than  four  years'  litigation  which  cost  the  inde- 
pendent companies  and  the  American  company  vast  sums 
of  money,  and  the  government  as  large  or  larger  sums,  all 
of  which  will  ultimately  be  paid  by  the  public. 

There  remains  to  be  mentioned  the  most  notable  feature 
of  the  tobacco  decision.  The  Supreme  Court  said  :  "While  in 
many  substantial  respects  our  conclusion  is  in  accord  with  that 
reached  by  the  court  below,  and  while  also  the  relief  which  we 
think  should  be  awarded  in  some  respects  is  coincident  with 
that  which  the  court  granted,  in  order  to  prevent  any  compli- 
cation and  to  clearly  define  the  situation  we  think  instead  of 
affirming  and  modifying,  our  decree,  in  view  of  the  broad 
nature  of  our  conclusions,  should  be  one  of  reversal  and  re- 
manding with  directions  to  the  court  below  to  enter  a  decree 
in  conformity  with  this  opinion  and  to  take  such  further  steps 
as  may  be  necessary  to  fully  carry  out  the  directions  which  we 
have  given." 

The  radical  feature  of  the  decision  is  contained  in  this  last 

clause,  "  to  take  such  further  steps  as  may  be  necessary  to 

The  court     fully  carry  out  the  directions  which  we  have  given."     As 

undertaking  ^yg  have  already  seen,  the  lower  court  in  complying  with  this 

tive  work,      request  approved  a  plan  for  the  disintegration  of  the  tobacco 

trust  which  had  been  proposed  by  the  tobacco  combination 

and  had  been  approved  by  the  Attorney-General.     Thus  this 

court  took  on  the  function  of  giving  an  order  to  the  lower 

court  to  do  administrative  work,  of  a  kind  which  has  usually 

been  done  by  a  commission  (see  pp.  233-244),  and  for  which 

a  commission  is  much  better  adapted.     When  the  order  was 

executed  as  directed,  the  members  of  the  disintegrated  trust 

had  the  advantage  of  having  the  sanction  of  law.     The  admin- 

*  Hearing,  Senate  Interstate  Commerce  Committee,  Part  XVIII,  p.  1368. 


THE  LAWS   REGARDING   COOPERATION      187 

istrative  work  of  the  court  in  disintegrating  the  American 
Tobacco  Company,  already  severely  criticized  and  generally 
believed  to  be  futile,  is  one  of  the  best  evidences  of  the  lack 
of  adaptation  of  the  courts  to  the  handling  of  the  complex 
administrative  problems  of  great  concentrations  in  industry. 

The  Du  Pont  Powder  Company.  —  In  the  case  of  the  E.  I. 
Du  Pont  de  Nemours  Powder  Company,^  knowTi  as  the 
powder  trust,  the  company  was  dissolved  and  the  broad  prin- 
ciple was  laid  down  by  the  Supreme  Court,  "  that  a  combina- 
tion cannot  escape  the  condemnation  of  the  antitrust  act 
merely  by  the  form  it  assumes  or  by  the  dress  it  wears.  It 
matters  not  whether  the  combination  be  '  in  the  form  of  a  Form  of 
trust  or  otherwise,'  w^hether  it  be  in  the  form  of  a  trade  associ-  ^materiaT 
ation  or  a  corporation,  if  it  arbitrarily  uses  its  power  to  force 
weaker  competitors  out  of  business  or  to  coerce  them  into  a 
sale  to  or  union  with  the  combination,  it  puts  a  restraint  upon 
interstate  commerce  and  monopolizes  or  attempts  to  monop- 
olize a  part  of  that  commerce  in  a  sense  that  violates  the 
antitrust  act." 

Dissolution  hy  Mutual  Agreement.  —  In  addition  to  dissolu- 
tion of  corporations  by  the  court,  after  full  trial  and  con- 
viction, there  is  another  class  of  cases  in  which  as  a  result  of 
complaint  the  company  without  trial  has  agreed  with  the  gov- 
ernment as  to  the  violation  of  the  Sherman  act,  and  decrees 
have  been  issued  in  accordance  therewith  with  the  consent 
of  the  company  against  which  complaint  was  made. 

One  of  the  most  notable  of  these  cases  was  that  of  the  Gen- 
eral Electric  Company.     This  company  was  charged  with 
having  a  monopoly  in  the  manufacture  of  incandescent  elec- 
tric lamps.     This  monopoly  was  secured  through  secret  com- 
panies, and  by  having  the  exclusive  rights  in  this  country  to  Unfair 
use  tantalum  and  tungsten  filaments.     This  right  through  ™^^°^f.°^ 
exclusive  agreement  was  used  to  require  that  any  firm  buying  tion. 
lamps  of  these  kinds  should  also  buy  all  their  carbon  filament 
lamps  from  the  General  Electric  Company     Through  unfair 
methods,  such  as  fixing  prices,  exclusive  agreements,  rebates, 
etc.,  monopoly  was  secured,  the  company  having  obtained  97 

1  Annual  Report  of  the  Attorney-General  of  the  United  States,  1911,  p.  8. 


188 


CONCENTRATION   AND  CONTROL 


Sweeping 
decree. 


Grocers' 

agreementa 

illegal. 


per  cent  of  the  incandescent  lamp  business  of  the  country. 
In  consequence,  excessive  charges  for  lamps  were  made,  be- 
ing seventeen  cents  apiece  in  this  country,  while  the  same 
lamps  are  sold  abroad  at  ten  cents. 

A  most  comprehensive  decree  was  issued  restraining  the 
General  Electric  Company  from  the  various  unlawful  acts  set 
forth  in  the  petition,  and  particularly  the  following  were 
ordered :  That  all  subsidiary  companies  of  the  General 
Electric  Company  should  be  known  as  such  and  should  con- 
duct their  business  in  the  name  of  that  company ;  exclusive 
contracts  of  all  kinds  were  forbidden,  such  as  requiring  another 
company  to  sell  goods  exclusively  to  the  General  Electric 
Company,  combining  with  other  companies  to  fix  prices, 
requiring  that  those  who  purchase  tantalum  and  tungsten 
lamps  should  also  purchase  from  the  General  Electric  Com- 
pany their  carbon  lamps.  The  company  was  enjoined  from 
making  a  discount  depending  upon  quantity  of  lamps  pur- 
chased when  the  result  is  to  combine  or  aggregate  the  discount 
on  an  unpatented  and  a  patented  lamp ;  it  was  further  enj  oined 
from  making  prices  or  terms  of  sale  for  the  purpose  of  driving 
out  of  business  any  rival  manufacturer ;  "  provided  that  no 
defendant  is  enjoined  or  restrained  from  making  any  prices  for 
incandescent  electric  lamps  to  meet,  or  to  compete  with,  prices 
previously  made  by  any  other  defendant,  or  by  any  rival 
manufacturer;  and  provided  further  that  nothing  in  this 
decree  shall  be  taken  in  any  respect  to  enjoin  or  restrain  fair, 
free,  and  open  competition."  ^ 

Another  interesting  case  is  that  of  a  business  association. 
In  October,  1911,  a  most  sweeping  decree  was  given  by  agree- 
ment of  both  the  United  States  and  Southern  Wholesale 
Grocers'  Association.  The  members  of  this  association  were 
perpetually  enjoined  from  restraining  trade  by  having  a 
list  of  dealers  to  whom  special  privileges  were  granted,  in- 
cluding selling  only  to  members  of  such  association.  They 
were  enjoined  from  making  any  agreement  regarding  prices, 


1  United  States  of  America  v.  General  Electric  Company  et  al.,  In 
Equity,  Circuit  Court  of  the  United  States  for  the  Northern  District  of  Ohio, 
Eastern  Division.     Petition  and  Final  Decree. 


THE   LAWS  REGARDING  COOPERATION     189 

or  even  preparing  a  list  of  prices  for  the  information  of 
one  another,  from  giving  rebates  or  bonuses  from  any  dealer 
because  he  is  a  member  of  the  association,  from  boycotting 
any  manufacturer  who  is  not  a  member  of  the  association  or 
does  not  maintain  limited  selling  prices.  In  short,  the  decree 
in  most  comprehensive  terms  enjoins  the  association  from  re- 
straining trade  in  any  way  by  fixing  prices,  making  exclusive 
agreements,  or  granting  exclusive  privileges  to  members  of 
the  association.  Under  the  decree  it  is  difficult  to  see  how 
there  can  be  any  combination  of  the  members  in  restraint  of 
trade  either  reasonable  or  unreasonable.^ 

Other  Corporations  under  Attack.  —  In  addition  to  decrees 
of  this  kind  there  are  a  number  of  organizations  attacked  by 
the  Attorney-General.     Among  these  are  the  follo^ving :  — 

The  United  States  Steel  Corporation  is  attacked,  both  on 
the  ground  of  the  combination  itself  and  of  trade  arrange- 
ments. It  is  charged  that  the  American  Steel  Wire  Company, 
one  of  the  subsidiary  companies  of  the  corporation,  has  made 
combinations  concerning  a  number  of  its  products ;  and  also 
that  there  are  informal  price  understandings  between  the 
officers  of  the  United  States  Steel  Corporation  and  those  of 
other  companies.^  The  United  Shoe  Machinery  Company^  is  Patent 
under  indictment  for  combination  in  restraint  of  trade  on  a  ™°°op°^y- 
number  of  counts,  including  both  monopoly  and  unfair  prac- 
tices in  securing  and  maintaining  monopoly.  Similarly  the 
National  Cash  Register  Company  ^  and  the  Keystone  Watch 
Case  Company  ^  are  attacked  both  for  gaining  monopoly  and 
for  unfair  practices  in  securing  the  monopoly. 

1  The  United  States  of  America  v.  The  Southern  Wholesale  Grocers' 
Association  et  al..  Circuit  Court  of  the  United  States  for  the  Northern 
District  of  Alabama.     Decree  of  Injunction. 

'  United  States  of  America  v.  United  States  Steel  Corporation  and  others, 
Circuit  Court  of  the  United  States  for  the  District  of  New  Jersey.    Petition. 

'  United  States  v.  Sydney  W.  Winslow  et  al.,  February  Term,  1911, 
Nos.  113  and  114,  Circuit  Court  of  the  United  States  for  the  District  of 
Massachusetts.     Indictment. 

*  The  United  States  of  America  v.  The  National  Cash  Register  Company 
and  others,  Circuit  Court  of  the  United  States  for  the  Southern  Judicial 
District  of   Ohio,  Western   Division. 

^  The  United  States  of  America  v.  The  Keystone  Watch  Case  Company 
and  others.  Circuit  Court  of  the  United  States  for  the  Eastern  District  of 
Pennsylvania. 


190 


CONCENTRATION  AND   CONTROL 


The  National  Cash  Register  Company  is  especially  charged 
with  a  number  of  the  most  objectionable  of  unfair  practices. 
In  the  petition  it  is  complained  that  this  company  maintains 
a  group  of  agents  known  as  "knock-out  men,"  who  are  em- 
ployed for  the  special  purpose  of  destroying  competitors. 
They  spy  upon  the  business  of  the  competitors,  misrepresent 
cash  registers  of  opposing  companies,  and  sell  registers  which 
resemble  their  machines  at  a  very  low  figure.  It  is  charged 
that  competing  companies  were  purchased  by  the  National 
Cash  Register  Company  and  this  fact  kept  secret. 

It  is  said  that  at  Dayton  was  maintained  a  "graveyard  "  or 
"midway  "  and  a  " glooming  room."  In  the  former  were  dis- 
played cash  registers  of  companies  that  had  been  driven  out 
of  the  business,  and  in  the  latter  it  was  shown  how  these 
companies  were  driven  from  the  business.  Also,  it  is  charged 
that  patents  covering  cash  register  inventions  have  been 
purchased,  and  that  inventors  of  other  devices  have  been 
prevented  from  putting  their  inventions  on  the  market.  It  is 
said  that  unwarranted  and  unjustifiable  suits  and  threats  of 
suits  have  been  brought  from  time  to  time  against  competi- 
tors with  the  purpose  of  intimidating  them.  In  order  to  make 
the  plans  of  intimidation  more  effective,  the  National  Cash 
Register  Company  distributed  statements  regarding  dead 
cash  register  companies.  One  issued  in  January,  1910,  stated 
that,  during  fifteen  years,  one  hundred  fiftyeight  companies 
had  been  organized  to  compete  with  the  National,  and  t^hat  of 
these,  one  hundred  fiftythree  had  failed.  With  this  state- 
ment is  given  a  list  of  the  defunct  companies.  Finally  it  is 
charged  that  at  places  where  there  was  keen  competition, 
prices  were  cut  so  as  to  prevent  competitors  from  doing 
business  except  at  a  loss,  the  losses  of  the  National  Com- 
pany being  recouped  by  large  profits  where  competition  did 
not  exist.  No  opinion  is  expressed  as  to  whether  or  not 
these  charges  against  the  National  Cash  Register  Company 
will  be  proved  to  be  well  founded. 

Other  companies  which  are  under  attack  include  the 
following :  Swift,  Armour,  and  other  beef  packers,  several 
lumber  dealers'  associations,  the  wall  paper  combination, 


THE  LAWS  REGARDING   COOPERATION     191 

the  American  Sugar  Refining  Company,  the  Trans-Atlantic 
steamship  pool,  the  Periodical  Publishing  Company,  the 
Standard  Wood  Company,  and  several  elevator  companies. 

General  Statements.  —  In  recent  years  whenever  cases  have 
been  in  the  court  under  the  Sherman  act,  pools,  combina- 
tions, or  agreements,  producing  restraint  of  trade,  have  been 
declared  to  be  illegal.  From  the  tenor  of  the  decisions  the 
conclusion  might  be  reached  that  the  law  had  been  fairly 
effective  in  producing  the  results  which  were  sought  when  the 
act  was  passed,  at  least  for  later  years ;  but  an  examination 
of  the  situation  shows  the  contrarj;-  to  be  true. 

All  of  the  railways  connecting  any  two  points  in  the 
United  States  charge  exactly  the  same  prices  for  the  same 
service,  be  it  freight  or  passenger.  As  already  pointed  out,  it  Railways 
is  a  matter  of  common  information  that  competition  in  price  <'°°P^'"^t^- 
between  the  railroads  does  not  exist ;  and  this  fact  is  tacitly 
accepted  by  the  public  and  by  the  Attorney-General  of  the 
United  States,  although  every  person  having  common  sense 
knows  that  the  situation  is  only  possible  by  agreements 
through  informal  understandings,  traffic  associations,  etc. 

For  twenty  years  the  major  effect  of  the  decisions  has  been  Law  drives 
to  change  the  forms  of  combination,  from  the  informal  agree-  combination 

®  '  ^  from  one 

ment  or  pool  to  the  trust,  from  the  trust  to  the  holding  com-  entrench- 
pany,  and  finally  there  is  the  beginning  of  the  transformation  ^^'fu*? 
from  the  holding  corporation  to  the  complete  merger.  At 
the  same  time  this  evolution  has  been  going  on  for  the  great 
industries,  hundreds  of  informal  associations  of  exactly  the 
same  kind  as  those  which  have  been  declared  to  be  illegal  have 
arisen,  such  as  the  various  retailers'  and  wholesalers'  associa- 
tions, the  fruit  growers'  associations,  the  butter  makers' 
associations,  etc.  Indeed,  a  comparison  of  the  situation  in 
the  United  States  with  other  countries,  such  as  England  and 
Germany,  in  which  combination  is  open,  shows  that  at  the 
present  moment  combinations  exist  to  a  greater  extent  in  the 
United  States  than  in  either  of  those  countries,  in  which  trade 
agreements  are  enforced  by  the  courts. 

Could  there  be  more  positive  evidence  than  this  of  the  fail- 
ure of   the  law  to  destroy  combination  and  cooperation? 


192 


CONCENTRATION  AND  CONTROL 


Impotency 
of  Sher- 
man act. 


Time 

arrived  for 
national 
solution. 


The  impotency  of  the  Sherman  act  to  accompHsh  the  results 
for  which  it  was  made  has  been  admitted  by  all,  alike  by  those 
who  would  have  it  amended  so  as  to  give  greater  freedom  in 
combination  and  by  those  who  would  have  it  amended  so  as 
to  give  a  very  strict  construction,  with  the  vain  hope  that  it 
might  thereby  destroy  cooperation. 

Since  the  Sherman  act  was  passed  a  child  born  has  attained 
his  majority.  While  there  has  been  gain  in  the  elimination  of 
unfair  practices,  there  has  been  no  gain  in  preventing  combi- 
nations in  restraint  of  trade,  the  fundamental  purpose  of  the 
law.  It  would  seem  that  the  time  had  now  come  for  a  ra- 
tional consideration  of  the  principles  which  should  apply  to 
the  situation  in  order  to  secure  reasonable  results  both  for 
combinations  and  for  the  public  without  interfering  with  great 
economic  tendencies.  Any  attempt  further  to  amend  the  law 
so  as  to  make  it  more  rigid  as  against  cooperation  cannot  but 
be  futile.  The  problem  of  combination  in  restraint  of  trade 
is  one  too  large,  too  complex,  and  too  irresistible  to  be  handled 
by  the  courts.  This  situation  has  been  clearly  seen  by  Knox, 
by  Wickersham,  and  by  others  who  have  attempted  to 
secure  the  results  aimed  at  by  the  Sherman  law ;  they  have 
found  themselves  baffled.  The  constructive  side  of  the  case  is 
presented  on  pp.  248-266. 


Section  4 


STATE  LEGISLATION  AGAINST  TRUSTS 

Many  of  the  states  have  constitutional  provisions  or  stat- 
utes which  embody  the  same  principles  as  the  Sherman 
act.  Among  the  states  which  have  constitutional  provis- 
ions against  combination  in  restraint  of  trade  or  monop- 
oly are :  Alabama,  1901 ;  Arkansas,  1836 ;  Idaho,  1889 ; 
Kentucky,  1891 ;  Maryland,  1867 ;  Mississippi,  1890 ;  Mon- 
tana, 1889;  North  Carolina,  1875;  North  Dakota,  1889; 
South  Carolina,  1895;  South  Dakota,  1896;  Tennessee, 
1870;  Texas,  1875;  Utah,  1895;  Virginia,  1902;  Washing- 
ton, 1889 ;   Wyoming,  1889. 

The  Statute  Laws.  —  The  names  of    some  of    the  states 


THE   LAWS   REGARDING   COOPERATION      193 

and  the  date  of  the  statutes  against  restraint  of  trade  and 
monopoly  are  as  follows :  Alabama,  1907 ;  Arkansas,  1897, 
1899,  1905,  and  1907;  California,  1907;  Florida,  1897; 
Georgia,  1896;  Illinois,  1891,  and  1893;  Indiana,  1897,  1899, 
1908 ;  Iowa,  1897 ;  Kansas,  1889,  1897,  and  1899 ;  Kentucky, 
1903;  Louisiana,  1890,  1892,  and  1894;  Maine,  1899  and 
1903;  Massachusetts,  1908;  Michigan,  1889  and  1903; 
Minnesota,  1891,  1899,  1905,  and  1907;  Mississippi,  1890, 
1906,  and  1908;  Missouri,  1891,  1899,  and  1907;  Nebraska, 
1897;  New  Mexico,  1891,  1897,  and  1907;  New  York,  1892, 
1897,  and  1899;  North  Carolina,  1899  and  1905;  North 
Dakota,  1890,  1897,  and  1907 ;  Ohio,  1898,  1905,  and  1906 ; 
Oklahoma,  1890  and  1908 ;  South  Carolina,  1897,  1899,  and 
1902 ;  South  Dakota,  1890,  1897,  and  1899 ;  Tennessee,  1889 
1891,  1897,  and  1903;  Texas,  1895,  1899,  1903,  and  1907; 
Utah,  1898  and  1907 ;  Wisconsin,  1893  and  1897. 

It  is  notable  that  only  two  of  the  states  had  antitrust  acts 
prior  to  1890,  the  year  the  Sherman  act  was  passed.  The 
State  antitrust  acts  were  the  natural  response  to  the  public 
demands  within  the  states  for  prohibition  of  restraint  of  trade  The  con- 
in  intrastate  business,  similar  to  that  which  had  been  enacted  igg/g'iation 
regarding  interstate  business.  As  would  be  expected,  under 
the  circumstances,  while  the  phraseology  varies,  the  prohi- 
bitions of  the  state  laws  are  substantially  like  those  of  the 
Sherman  act,  except  that  they,  of  course,  contain  no  refer- 
ence to  trade  between  the  states  and  territories  or  with  for- 
eign countries.  In  a  number  of  instances,  trusts,  pools,  and 
holding  companies  which  have  the  purposes  of  regulating 
output,  dividing  the  market,  or  controlling  prices  are  specifi- 
cally prohibited.  In  a  few  states  there  are  special  features 
which  should  be  noted,  as  giving  additional  insight  into  the 
situation. 

In  Georgia  is  a  provision  that  the  general  assembly  of  that 
state  shall  have  no  power  to  authorize  any  corporation  to  buy 
shares  of  stock  in  any  other  corporation  in  that  state  or  else- 
where, or  to  make  any  contract  or  agreement  whatever,  with 
any  such  corporation,  which  may  have  the  effect  to  defeat  or 
lessen  competition  in  their  respective  businesses,  or  to  encour- 


194    CONCENTRATION  AND  CONTROL 

age  monopoly;  and  all  such  contracts  and  agreements  are 
declared  to  be  illegal  and  void.  This  is  the  only  instance  in 
which  the  law  specifically  forbids  the  interholdings  of  stocks,  a 
remedy  which  is  advocated  by  many  for  interstate  commerce. 

In  the  Illinois  and  Louisiana  laws  there  is  a  clause  which 
states  "  that  the  provisions  of  the  act  shall  not  apply  to  agri- 
cultural products  or  live  stock  while  in  the  hands  of  the  pro- 
ducer or  raiser" ;  and  in  the  Louisiana  law  is  the  additional 
clause  that  the  law  shall  not  be  construed  to  affect  any  com- 
bination or  confederation  of  laborers  for  the  purpose  of 
increase  of  their  wages  or  redress  of  grievances.  The  legis- 
latures of  Louisiana  and  Illinois  in  passing  an  antitrust  law 
apparently  fully  appreciated  the  fact,  practically  unnoticed  in 
the  public  discussions,  that  the  selling  agencies  of  the  farmers 
for  marketing  their  produce  may  be  as  clearly  a  combination  in 
restraint  of  trade  as  are  similar  selling  agencies  of  manufac- 
turers. The  exempting  clause  for  agricultural  products  was 
declared  to  be  void  by  the  United  States  Circuit  Court  of 
Illinois  as  being  class  and  special  .legislation. 

In  Massachusetts  it  is  a  criminal  offense  to  impose  "the 
condition  in  a  sale  of  goods  that  the  purchaser  shall  not  sell 
or  deal  in  the  goods  of  any  person  other  than  the  seller."  ^ 
This  law  has  been  held  to  be  constitutional. 

In  Michigan  is  a  provision  of  the  law  declaring  illegal  con- 
tracts ''not  to  engage  in  any  avocation,  employment,  pursuit, 
trade,  profession,  or  business,  whether  reasonable  or  unrea- 
sonable, partial  or  general,  limited  or  unlimited."  This  state 
law  specifically  goes  beyond  the  common  law  principle  of 
reasonable  restraint.  This  law  accords  with  the  decisions 
of  the  Supreme  Court  of  the  United  States  which  had  been 
made  up  to  that  time.  It  was  not  until  1911  that  the  courts 
introduced,  by  interpretation  into  the  Sherman  act,  the  word 
"reasonable." 

In  Oklahoma  the  antitrust  law  prohibits  several  unfair 
practices.  Thus  it  is  prohibited  to  discriminate  by  sale  at  a 
lower  rate  in  one  section  than  in  another,  "or  at  the  same 
rate  or  price  at  a  point  away  from  that  of  production  or  manu- 

1  191  Mass.  545. 


THE   LAWS   REGARDING  COOPERATION     195 

facture  as  at  the  place  of  production,  etc.,  if  the  effect  or 
intent  is  to  hinder  competition  or  restrain  trade."  Also, 
the  Oklahoma  law  is  very  specific  regarding  trusts,  hold- 
ing corporations,  limiting  output,  and  marketing.  It  is  de- 
clared unlawful  to  issue  or  own  trust  certificates,  or  to  enter 
into  any  combination,  etc.,  for  the  purpose  of  placing  the  man- 
agement or  control  of  such  combination,  or  the  conduct  or 
operation  of  the  same,  or  the  output  or  produce  thereof,  or 
the  marketing  of  the  same  in  the  hands  of  any  trust  or  trus- 
tees, holding  corporations,  etc.,  with  the  intent  to  limit  or  fix 
prices,  lessen  the  production  or  sale  of  any  article,  or  the  use 
and  consumption  of  the  same,  or  to  prevent  or  restrict, 
the  manufacture  or  output  of  any  such  article.  Further,  in 
this  state  the  following  very  significant  provision  is  inserted 
in  the  law:  "  Whenever  any  business,  by  reason  of  its  nature, 
extent,  or  the  existence  of  a  virtual  monopoly  therein,  is  such 
that  the  public  must  use  the  same  in  such  a  manner  as  to  make 
it  of  public  consequence,  or  to  affect  the  community  at  large  Industries 
as  to  supply,  demand,  or  price  thereof,  or  said  business  is  ^^^  ^ 
conducted  in  violation  of  section  1  (6679),  said  business  is  a  interest, 
public  business  and  subject  to  be  controlled  by  the  state,  by 
the  corporation  commission,  or  by  an  action  in  any  district 
court  of  the  state,  as  to  all  of  its  practices,  prices,  rates,  and 
charges."  This  paragraph  clearly  looks  toward  the  point 
of  view  that  the  great  concentrations  of  industry  become  public 
utilities;  indeed,  whenever  the  element  of  monopoly  or  re- 
straint of  trade  to  the  extent  of  affecting  the  community 
enters  as  a  whole  it  makes  them  so.  When  this  situation 
is  reached  for  any  business,  it  comes  under  the  same  princi- 
ples of  control  as  the  common  carriers. 

In  South  Dakota  the  law  especially  protects  the  farmers, 
as  follows :  Any  combination  to  prevent  competition  by 
raising  the  price  bej^ond  the  reasonable  cost  of  production 
or  that  tends  to  advance  the  price  to  the  user  of  farm  machin- 
ery, implements,  tools,  supplies,  lumber,  wood,  and  coal, 
imported  into  this  state  from  any  other  state,  territory,  or 
county,  beyond  the  reasonable  cost  of  production  and  sale 
of  same  or  which  tends  to  and  does  induce  a  sale  of  wheat, 


196    CONCENTRATION  AND  CONTROL 

corn,  oats,  barley,  flax,  cattle,  sheep,  hogs,  or  other  farm  or 
agricultural  products  for  less  than  they  are  worth  at  time  of 
sale,  or  for  what  they  would  sell  at  in  open  market,  if  such 
contract  did  not  exist,  is  declared  to  be  unlawful. 

In  Utah  it  is  seen  that  when  professional  men  agree  on  prices 
the  principle  is  the  same  as  in  other  combinations,  and  the 
law  says,  "Any  combination  having  for  its  object  the  control- 
ling of  the  prices  of  any  professional  services,  any  products  of 
the  soil,  any  article  of  manufacture  or  commerce,  or  the  cost 
of  exchange  or  transportation  is  prohibited  and  declared 
unlawful." 

The  Nebraska  antitrust  law  of  1897  was  most  sweeping  in 
its  character.  It  very  definitely  makes  all  combinations 
in  restraint  of  trade  to  whatever  extent  a  trust  and  declares 
the  same  to  be  illegal.  Also  it  prohibits  in  comprehensive 
terms  all  classes  of  cooperation.  It,  however,  excludes  from 
its  provisions  all  assemblages  and  associations  of  working- 
men  and  provides  that  "there  is  thereby  reserved  for  them 
all  the  rights  and  privileges  now  accorded  them  by  law."  ^ 
This  act  was  declared  to  be  unconstitutional  by  the  fed- 
eral courts  as  depriving  persons  of  their  liberty  in  violation 
of  the  federal  Constitution  and  also  as  exempting  labor 
organizations  from  its  provisions,  thus  denying  equal  pro- 
tection of  the  laws  to  persons  not  members  of  such  organ- 
izations. 

In  Texas,  refusing  to  buy  or  sell  to  another  any  article 
of  merchandise  is  declared  to  be  conspiracy  in  restraint  of 
trade.  Also,  agreements  to  boycott  or  threaten  to  refuse  to 
buy  are  made  illegal.  The  state  statute  prohibits  all  com- 
binations in  restriction  of  competition  or  trade,  but  exempted 
agricultural  products  and  live  stock  while  in  the  hands  of 
the  producers  or  raisers.^  This  law  was  declared  by  the 
federal  courts  to  be  a  violation  of  the  amendment  to  the 
Constitution  of  the  United  States,  which  declares  that  no 
state  shall  deny  any  person  within  its  jurisdiction  equal  pro- 
tection under  the  laws. 

The  lUinois,  Nebraska,  and  Texas  decisions  seem  clearly  to 

1 110  Fed.  816,  1901.  ' 79  Fed.  627,  1897. 


THE   LAWS   REGARDING   COOPERATION     197 

show  that  the  antitrust  laws  in  those  states  which  contain 
exemptions  in  favor  of  any  class  will  be  held  to  be  unconsti- 
tutional by  the  Supreme  Court  of  the  United  States. 

Decisions  under  the  Statutes.  —  In  this  brief  book  there  is 
not  space  to  discuss  in  detail  the  decisions  which  have  been 
rendered  under  the  statute  laws.  In  general,  the  statutes  Restrictive 
regarding  combinations  and  contracts  in  restraint  of  trade  *t^te  l 
have  gone  much  farther  than  the  common  law  in  imposing 
restrictions  upon  commerce.  The  author  knows  of  no  in- 
stance in  which  state  statutes  have  moved  in  the  direction 
of  the  English  Parliamentary  act  in  enlarging  the  scope  of 
combination.  The  effort  of  the  statute  law  has  been  to  reach 
restraints  of  trade  which  would  have  escaped  the  ban  of  the 
common  law.  Pools,  trusts,  combinations,  and  monopolies 
have  been  declared  not  to  be  legal.  For  the  most  part  re- 
straint of  trade  taking  the  form  of  contracts  regarding  division 
or  restriction  of  territory,  or  regulation  of  output  or  prices, 
have  been  declared  unlawful.  Such  decisions  have  been 
rendered  in  many  states,^  although,  under  the  common  law, 
many  of  the  forbidden  agreements  would  have  been  allowed. 
It  is  not  necessary  to  give  the  details  of  decisions  covering 
these  points,  and  only  those  having  some  special  feature  will 
be  summarized. 

Agreements  regarding  the  fixing  of  price  for  insurance  have 
been  held  to  be  illegal.  In  Iowa  this  has  been  applied  to 
a  group  of  local  insurance  agents  who  agreed  upon  the  price 
for  each  class  of  risk.^  In  Minnesota  a  combination  by  which 
twenty-eight  independent  companies  agreed  to  place  the  con- 
trol of  their  business  with  one  company  to  the  extent  of  fixing 
the  rate  was  held  to  be  in  restraint  of  trade  and  a  violation  of 
the  code.'  In  Missouri,  an  agreement  of  insurance  companies 
regarding  rates  was  declared  illegal.'* 

A  local  agreement  to  raise  the  price  of  beer  in  Kentucky 

1147  Cal.  115,  1905;  107  Pac.  712,  1910;  65  lU.  App.  502,  1896;  182 
lU.  551,  1889;  171111.391,  1898;  65  Kas.  240,  1902;  112  Ky.  925,  1902; 
119  Mich.  255,  1899;  134  Mich.  103,  1903;  140  Mich.  538,  1905;  187 
Mo.  244,  1905;  116  N.  W.  302,  1908;  177  N.  Y.  473,  1904;  139  N.  Y. 
251,  1893;  72  Ohio  State,  210,  1905;  61  Ohio  State,  520,  1900;  106  Pac. 
969,  1910;  128  S.  W.  599,  1910.  2 102  la.  602,  1897. 

3  75  Minn.  28,  1897.  *  152  Mo.  1,  1899. 


198  CONCENTRATION  AND  CONTROL 

$1  a  barrel  was  declared  to  be  illegal,  although  it  had  for  its 
purpose  the  raising  of  the  price  of  an  intoxicant,  the 
increased  use  of  which  the  law  does  not  favor.^ 

It  is  not  necessary  that  a  combination  shall  secure  a  practi- 
cal monopoly  of  the  product  in  order  to  be  in  restraint  of 
trade  under  some  of  the  state  statutes.^  Transactions  creat- 
ing a  local  monopoly  for  a  limited  period  (ten  years)  have 
been  declared  to  be  illegal.^  In  Oklahoma  this  principle  has 
been  carried  so  far  as  to  hold  that  a  combination  by  three 
companies  manufacturing  ten  per  cent  of  a  product  is  in 
restraint  of  trade.^ 

Contracts  for  exclusive  dealing  have  been  declared  to  be  un- 
lawful in  a  number  of  states.  In  Kansas  exclusive  contracts 
of  agents  to  handle  International  Harvester  machinery  were 
declared  to  be  in  restraint  of  trade.^  In  Michigan  agreements 
to  sell  all  the  salt  manufactured  to  a  single  concern  and  to  stop 
the  manufacture  of  salt  upon  the  payment  of  a  certain  rental 
was  held  to  be  illegal.®  In  Texas  an  agreement  to  buy  oil  and 
beer  from  a  single  firm,  to  sell  at  a  fixed  price,  and  not  to  sell 
to  competing  dealers,  was  declared  to  be  in  violation  of  the 
laws  in  restraint  of  trade.^ 

In  general,  agreements  made  by  associations  by  which  their 
members  would  have  the  advantages  of  exclusive  dealing  or 
which  discriminate  against  non-members  regarding  prices 
and  other  matters,  have  been  held  to  be  unlawful.* 

Thus  produce  exchanges  which  discriminate  in  prices  be- 
tween members  and  non-members  have  been  declared  to  be  in 
restraint  of  trade. ^  In  Michigan  it  has  been  held  that  a  con- 
tract to  sell  lambs  where  the  buyer  agrees  not  to  purchase  any 
other  lambs  to  a  fixed  time  is  held  to  be  void,  since  under  the 
statutes  all  contracts  designed  in  any  manner  to  prevent  or 
restrain  price  competition  is  unlawful.^" 

In  Oklahoma  an  agreement  not  to  enter  business  within  one 

1112  Ky.  925.  1902.    2  214  111.421,1905.    '  i28  S.  W.  599,  1910. 
« 59  S.  W.  709,  1900.    '  81  Kas.  610,  Feb.,  1906. 
«  134  Mich.  103,  1903. 

'  19  Texas  Civ.  App.  1,  1898;  90  Texas  277,  1896.  See  also  119  Mich. 
255,  1899,  and  97  Miss.  App.  280,  1902. 

8  211  Mo.  181,  1908;  75  Neb.  637,  1906;  103  Tenn.  99,  1899. 

9  82  Minn.  173,  1901.  w  119  Mich.  255,  1899. 


THE  LAWS  REGARDING   COOPERATION     199 

hundred  miles  of  Oklahoma  City  was  declared  to  be  in  conflict 
with  the  statute  which  provides  for  disposal  of  good  will  on 
an  exclusive  basis  only  to  the  extent  of  a  specified  county.^ 

In  Minnesota  it  has  been  held  to  be  a  violation  of  the 
statute  to  sell  kerosene,  as  has  been  done  by  the  Standard  Oil 
Company,  at  different  prices  at  various  localities,  with  the  in- 
tent to  destroy  business  of  competitors  and  create  monopoly.^ 

Selling  agencies  are  under  the  ban  of  the  law  in  some  states. 
In  New  York  City  there  was  created  an  agency  for  the  buying 
and  selling  of  milk  at  wholesale  and  retail.  The  majority  of 
the  stockholders  in  this  agency  were  milk  dealers  in  the  city 
of  New  York.  The  board  of  directors  fixed  the  price  at  which 
milk  should  be  purchased  by  the  stockholders.  This  price 
so  fixed,  controlled  the  markets  and  the  combination  was  de- 
clared to  be  unlawful.^  Similarly  the  producers  of  bluestone 
combined  in  an  association  to  regulate  the  price  and  appor- 
tion their  output  under  which  separate  companies  made  the 
sales  for  each  participant.  This  arrangement  was  declared 
to  be  unlawful.* 

The  above  sufficiently  illustrates  the  dominant  trend  of  the 
decisions  against  restraint  of  trade.     Some  of  the  states  have   Restraint 
allowed  contracts  in  restraint  of  trade  to  a  very  limited  ex-  i^^^^^  *° 
tent.     In  California,  when  a  merchant  purchased  a  certain  extent. 
quantity  of  olive  oil,  agreeing  not  to  sell  the  same  below  a 
certain  price  per  gallon,  this  agreement  was  held  not  to  be  in 
violation  of  the  code  restraining  monopolies.^     In  New  York 
in  one  case  it  has  been  held  that  an  agreement  under  which 
wholesale  dealers,  manufacturing  certain  proprietary  articles, 
sell  their  goods  at  a  uniform  jobbing  price  only  to  such  dealers 
as  would  conform  to  the  manufacturers'  price  list  is  legal. ^ 
Along  the  same  line  it  has  been  held  lawful  for  manufacturers 
to  give  jobbers  rebates  who  would  agree  not  to  sell  for  less 
than  the  list  price  prescribed  by  the  manufacturers.'' 

In  New  York  an  agreement  between  a  builders'  association 
and  a  bricklayers'  union,  under  which  the  association  gave 

1  Wilson's  " Review  and  Annals,"  St.  Okl.,  1903,  sections  819-820. 
«  126  N.  W.  527,  1910.       ^  145  N.  Y.  267,  1895.        *  164  N.  Y.  401,  1900, 
5 156  Cal.  611,  1909.  « 175  N.  Y.  1,  1903. 

'  40  N.  Y.  App.  Div.  513,  1899. 


200    CONCENTRATION  AND  CONTROL 

preference  to  the  members  of  the  union,  and  no  member  of  the 
bricklayers'  union  could  work  for  any  one  not  complying  with 
the  regulations,  was  declared  not  to  constitute  a  monopoly 
within  the  New  York  statute.^  An  agreement  of  the  Duluth 
board  of  trade  providing  that  all  members  of  the  board  shall 
charge  uniform  rates  of  commission  for  selling  grain  to  non- 
members  was  declared  not  to  be  a  violation  of  the  Minnesota 
antitrust  act.^ 

Contracts  for  limited  exclusive  agencies,  and  to  refrain  from 
business  for  a  limited  time  and  place,  have  been  held  to  be 
legal.  In  Mississippi  a  contract  for  an  exclusive  agency  for  a 
definite  territory  to  sell  a  certain  article  manufactured  by  a 
single  company  was  held  not  to  be  in  restraint  of  trade.^  In 
Arkansas  an  agreement  to  refrain  from  soliciting  insurance 
in  Jefferson  County  for  five  years  was  held  to  be  lawful.^  It 
has  been  held  to  be  reasonable  for  shopkeepers  to  agree  as  to 
the  hour  of  closing  their  shops.^ 

General  Statements.  —  The  foregoing  discussion  of  the  situa- 
tion within  the  states  shows  that  the  statute  laws  have  been 
very  strictly  construed  regarding  restraint  of  trade.  The 
great  majority  of  the  decisions  under  the  laws  have  been 
against  combinations  and  contracts  in  restraint  of  trade,  and 
against  regulation  of  output,  division  of  territory,  and  agree- 
ments in  prices.  However,  the  last  set  of  cases  cited  show 
that  contracts  restraining  trade  to  a  very  limited  degree 
have  been  allowed. 

The  statute  laws  are  as  strongly  against  combination  or  re- 
straint of  intrastate  trade  as  is  the  Sherman  antitrust  act 
for  interstate  commerce.  Upon  the  whole  the  situation  within 
the  states  with  regard  to  restraint  of  trade  under  the  laws  and 
decisions  is  practically  the  same  as  with  interstate  commerce 
under  the  Sherman  act. 

The  legislation  against  the  trusts  among  the  states  along 
the  same  lines  as  that  of  Congress  shows  the  influence 
of  contagion,  and  the  willingness  of  legislatures  to  act 
upon  a  generally  accepted  faith  such  as  that  which  prevails 

1  169  Fed.  256,  1909.  *  101  Minn.  506,  1909.  '  77  Miss.  476,  1899. 

*  121  S.  W.  293,  1909.  *  54  S.  W.  969,  1900. 


THE  LAWS   REGARDING  COOPERATION    201 

concerning  the  power  of  competition  adequately  to  regulate 
commerce. 

As  already  pointed  out,  combinations,  in  prices  formal  or 
informal,  exist  everywhere,  from  the  two  or  three  grocers  at 
the  country  crossroads  to  the  great  business  concerns.  Just 
as  the  effect  of  the  Sherman  law  has  been  steadily  to  increase 
the  concentration  of  industry,  so  the  legislation  in  the  states 
regarding  restraint  of  trade  has  been  an  influence  in  the  same 
direction. 

The  foregoing  makes  it  clear  that  where  a  sound  and  power- 
ful economic  tendency  appears  which  appeals  to  the  common 
sense  of  the  community  as  necessary  for  the  general  welfare,  a 
law,  however  drastic,  cannot  stand  in  its  way.  Burke  said 
in  his  address  upon  Conciliation  with  America,  "  I  do  not  know 
the  method  of  drawing  up  an  indictment  against  an  whole 
people."  If  at  the  present  time  the  laws  against  combination 
in  this  country  are  to  be  strictly  enforced,  it  will  be  necessary 
to  draw  an  indictment  against  the  larger  part  of  the  business 
men  of  the  country. 

The  great  combinations  which  have  been  selected  for  indict- 
ment have  been  those  against  which  popular  clamor  has  been 
directed.  The  selection  of  them  has  been  largely  due  to  this 
cause  combined  with  their  magnitude.  Is  it  not  a  most  unfor- 
tunate situation  when  tens  of  thousands  are  guilty,  that  here 
and  there  one  is  picked  out  for  prosecution  ? 

One  of  the  most  serious  evils  in  connection  with  the  situa- 
tion arises  from  this  fact.  The  business  men,  knowing  that 
cooperation  is  not  possible  under  the  law,  are  driven  to  secret 
understandings  and  gentlemen's  agreements.  In  the  dark, 
serious  abuses  appear  in  connection  with  cooperation  which 
would  not  arise  if  the  cooperation  were  legal  and  therefore 
there  was  no  reason  to  hide  the  facts  from  the  public.  In  this 
respect  the  business  men  of  England  and  Germany  are  in  an 
advantageous  position  as  compared  with  those  of  the  United 
States.  In  those  countries  they  may  cooperate ;  in  the  United 
States  they  may  not. 

It  would  indeed  have  been  fortunate  had  we  allowed  the 
common  law  to  stand,  and  instead  of  enacting  statutes  to 


202  CONCENTRATION  AND  CONTROL 

prohibit  cooperation,  had  undertaken  its  control  through  some 
administrative  instrumentahty.  While  it  is  believed  that 
the  present  campaign,  by  the  Attorney-General,  to  destroy 
cooperation  and  return  to  competition  will  not  be  successful, 
yet  if  it  should  be  successful  for  trade,  manufacture  and 
commerce  will  again  be  in  the  position  that  they  were  when 
England  and  America  were  under  the  old  restrictions  of 
common  and  statute  law.  If  it  should  turn  out  that  busi- 
ness is  forced  to  this  situation,  we  shall  again  be  obliged  to 
go  through  the  same  stage  of  development  that  both  coun- 
tries have  once  undergone,  ^-  amelioration  of  the  law  until 
reasonable  cooperation  is  again  permissible.  In  that  case 
we  shall,  by  our  unwise  attempt  through  statute  law  to 
stem  the  tide  of  great  economic  forces,  make  America  go 
through  two  cycles  of  evolution  to  reach,  permanently,  rea- 
sonable trade  conditions,  whereas  one  cycle  has  been  suffi- 
cient for  all  other  civilized  countries. 


CHAPTER  IV 
THE  SITUATION  IN  OTHER  COUNTRIES » 

To  describe  adequately  the  situation  regarding  concentra- 
tion in  industry  for  other  countries  would  involve  for  each  a 
book  as  large  or  larger  than  this ;  therefore  there  can  be  in- 
serted but  the  briefest  summary  of  the  principles  which  have 
controlled  combinations  and  restraint  of  trade  in  several  of 
the  more  important  countries. 

Section  1 

ENGLAND 

The  situation  in  England  is  fully  described  by  Macrosty,* 
and  from  his  book  this  statement  is  mainly  taken. 

As  already  pointed  out,  the  law  of  England  originally  pre- 
vented combination  in  restraint  of  trade.  This  principle 
was  abandoned  many  years  ago,  and  the  doctrine  was  ac- 
cepted that  freedom  in  trade  gave  freedom  to  combine  as 
well  as  freedom  to  compete,  provided  the  combination  did 
not  result  in  monopoly.  Under  these  circumstances  there  Federations 
have  grown  up  extensive  combination  and  cooperation  in 
almost  every  line  of  industry  in  Great  Britain ;  but,  not  be- 
ing driven  from  one  position  to  another  by  prohibition  of 
combination,  the  movement  toward  giant  holding  companies 
or  mergers  has  not  been  so  far-reaching  as  in  this  country. 
To  a  considerable  extent  the  combinations  are  through  coop- 
erations and  federations  rather  than  mergers,  although  in  a 
number  of  cases  consolidation  has  gone  far ;   and  there  are 

1  The  situation  regarding  industrial  combinations  in  Europe  to  the  year 
1900  is  fully  described  by  J.  W.  Jenks,  Report  of  the  Industrial  Commission, 
Vol.  XVIII.  pp.  343. 

2  "The  Trust  Movement  in  British  Industry." 

203 


rather  than 
mergers. 


204 


CONCENTRATION  AND  CONTROL 


Textile  com- 
binations. 


Tobacco 
combina- 
tion. 


a  few  industries  in  which  a  single  combination  controls  more 
than  half  of  the  business. 

In  the  iron  and  steel  industry  amalgamation  is  far  ad- 
vanced, so  that  at  the  present  time  the  larger  part  of  the 
business  is  controlled  by  a  few  large  combinations.  The 
greater  consolidated  companies  are  united  into  an  associa- 
tion under  which  there  are  agreements  or  understandings  re- 
garding prices,  markets,  and  allotments.  Says  Macrosty :  ^ 
"  Summing  up  the  situation  in  the  iron  and  steel  industries, 
the  conclusion  forced  on  us  seems  to  be  that  the  tendency 
is  towards  the  evolution  of  a  comparatively  few  large  units  in 
each  branch,  and  then  that  these  units  should  combine  into 
a  loose  organization  for  the  regulation  of  their  trade."  The 
combinations  in  iron  and  steel  include  both  horizontal  com- 
bination, that  is,  union  of  plants  of  the  same  kind,  and  ver- 
tical combination,  or  union  of  the  industry  from  its  raw 
material  to  the  finished  product. 

In  coal  mining  and  cement  making,  consolidation  and 
cooperation  have  taken  place,  but  the  process  has  not  gone 
so  far  as  in  iron  and  steel. 

In  the  textile  industries  concentration  has  extended  very 
far.  This  combination,  unlike  that  of  steel,  is  mainly  of 
the  horizontal  kind.  The  first  great  success  in  amalgamation 
in  this  business  was  the  J.  &  P.  Coats  consolidation.  This 
business  has  expanded  so  as  to  become  an  international  com- 
pany. The  success  of  this  combination  led  to  similar  ones 
for  various  textiles,  although  large  combinations  as  yet  have 
not  extended  to  all  lines  of  the  business,  nor  for  all  have 
they  been  successful. 

In  the  chemical  industries,  combinations  have  extended  very 
far.  Concentration  has  been  rapid  in  the  grain-milling  indus- 
try. In  tobacco  there  is  one  great  consolidation,  the  Imperial 
Tobacco  Company,  which  occupies  a  position  in  Great  Britain 
analogous  to  that  of  the  former  American  Tobacco  Company 
in  this  country.  Even  in  the  retail  business,  which  Macrosty 
points  out  is  the  last  stronghold  of  competition,  combina- 
tion and  cooperation  exist  upon  an  extensive  scale. 
1  "The  Trust  Movement  in  British  Industry,"  p.  82. 


THE   SITUATION   IN   OTHER  COUNTRIES    205 

While  in  the  various  consohdations  of  Great  Britain  over- 
capitaHzation  and  promoters  manipulations  have  been  fre- 
quent, these  have  not  gone  so  far,  nor  been  so  widespread,  as 
in  this  country,  where  consolidation  has  been  stimulated  by 
adverse  laws,  and  where  combination  has  had  the  protection  Combina- 
of  a  tariff.     Macrosty  says:  ^   "The  weakness  of  every  form  ^°^q^ 
of  combination  in  the  United  Kingdom  is  due  to  the  free 
admission  of  foreign  competition."     He  states  that  if  that 
condition  can  be  removed,  the  combinations  will  be  enor- 
mously strengthened.     The  combination  which  confines  its 
operations  strictly  to  Great  Britain  is  at  a  disadvantage  as 
compared  with  combinations  in  countries  which  have  a  pro- 
tective tariff,  for  the  reason  that  the  excess  products  of  the  British  com- 
foreign  countries  can  enter  Great  Britain  without  payment  bmations 

°  .  .  Dot  confined 

of  duties ;  whereas  the  reverse  is  not  the  case.    This  situation  to  United 
has  resulted  in  international  combinations  for  a  number  of  Ki°sdom. 
the  more  successful  of  those  which  center  in  or  do  business  in 
Great  Britain,     Such  international  combinations  are  illus- 
trated by  the  Imperial  Tobacco  Company  with  a  capitali- 
zation of  £17,500,000,  the  United  Alkali  Company  with  a 
capital  of  £8,200,000,  the  W.  Cory  &  Sons  Coal  Company 
with  a  capital  of  £2,800,000,  the  J.  &  P.  Coats  Thread  Com- 
pany   (this   combination   includes   England,    America,    and 
Belgium),  the  Nobel  Dynamite  Trust  Company  with  a  capi- 
tal of  £3,000,000,  and  the  international  steel  rail  combination. 
Macrosty  summarized  the  situation  as  follows:  — 
"  The  position  of  the  British  combinations  in  regard  to  the 
interests  of  the  community  may  be  summed  up  as  not  at 
present  dangerous  but  containing,  like  every  new  develop- 
ment, great  and  unknown  possibilities  alike  for  good  and  for  Cannot  go 
evil.     Over  prices  their  powers  are  not  great  but  are  growing,   g^ri^- con- 
So  far  they  have  shown  no  increased  power  over  their  em-  ditions. 
ployees,   and   with   a   strong   trade   union   they   need   not 
have."  .  .  . 

"  Nothing  could  be  more  fatal  than  in  a  panic  to  try  to 
turn  back  a  great  industrial  movement.  So  far  as  can  be 
seen  the  great  amalgamations  are  the  best  instruments  of 

1  "  The  Trust  Movement  in  British  Industry,"  p.  342. 


206 


CONCENTRATION  AND  CONTROL 


Futility  of 
repressive 
legislation. 


production  yet  devised,  and  to  break  them  up  into  their 
original  components  would  be  foolish  if  it  were  not  in  most 
cases  impossible.  Crude  methods  of  suppression  are  always 
wrong,  nor  does  it  seem  sensible  to  search  among  legal 
principles  relevant  to  a  different  stage  of  industry  for  weapons 
to  hamper  and  obstruct."  .  .  . 

"Repressive  legislation  could  only  affect  the  outer  form  of 
combination.  Amalgamation  cannot  be  prohibited  without 
forbidding  the  union  of  even  two  firms,  while  to  make  mo- 
nopoly illegal  would  be  fruitless  where  no  formal  monopoly 
exists,  and  there  is  no  way  of  determining  the  greater  ef- 
fectiveness for  evil  of  a  merger  including  eighty  per  cent  of 
the  trade  over  one  containing  onlj'-  fifty.  No  law  can  suppress 
the  Gentlemen's  Agreement,  where  there  are  no  rules,  no  con- 
stitution, no  contract,  but  common  action  is  effected  verbally 
and  informally,  and  yet  some  of  the  most  oppressive  combi- 
nations have  been  of  that  form.  Neither  combination  nor 
agitation  should  be  driven  underground,  and  it  is  significant 
that  to-day  complaints  are  generally  raised  in  the  United 
Kingdom,  not  against  the  legallij  recognized  amalgamations  but 
against  associations  which  have  no  existence  in  the  eyes  of  the  law 
and  work  in  secret.  To  strike  at  the  methods  adopted  by 
combinations  is  not  easy  without  at  the  same  time  repressing 
measures  blamelessly  adopted  by  the  individual  trader.  Boy- 
cotting, dumping,  selling  at  a  loss  to  crush  competition,  main- 
taining prices  at  the  highest  level  which  the  market  permits  — 
these  are  no  monopoly  of  combinations,  but  are  weapons 
in  everyday  use  by  manufacturers,  merchants,  and  shop- 
keepers. It  would  be  indeed  an  extraordinary  thing  to 
strike  at  competition  in  the  name  of  competition."  ^ 


Section  2 

GERMANY 

In  Germany,  combination  has  gone  farther  than  in  Eng- 
land.     In  1897  Liefmann  gave  a  list  of  345  combinations  in 

1  "The  Trust  Movement  in  British  Industry,"  pp.  343-345. 


THE  SITUATION   IN  OTHER  COUNTRIES    207 

that  country.  Usually  the  combinations,  called  cartels, 
are  contracts  among  independent  establishments  which  limit 
output,  divide  markets,  and  control  prices.  Oftentimes  Extent  of 
these  are  accomplished  through  central  agencies.  It  is  clear  po™bi°ation 
that  these  cartels  for  each  of  the  lines  of  business,  concerning 
which  they  exist,  act  powerfully  in  restraint  of  trade.  Many 
of  them  comprise  substantially  the  feature  of  the  typical 
trusts  of  the  past  in  America  which  have  been  dissolved  by 
the  courts.  But  in  Germany,  violations  of  these  contracts 
are  held  to  be  immoral.  In  other  words,  the  principle  is 
broadly  accepted  and  enforced  by  the  courts,  that  freedom  in 
commerce  involves  freedom  to  combine  as  well  as  freedom  to 
compete. 

As  illustrations  of  these  cartels,  the  Steel  and  Potash  com- 
bines will  be  briefly  described. 

The  German  Steel  Combine.  —  Combinations  in  Germany 
have  extended  farthest  in  the  iron  industry.  One  of  the  larg- 
est and  most  successful  of  these  combinations  is  that  of  the 
steel  producers.  This  combination  is  especially  important  Steel  Com- 
because  of  its  analogy  to  the  United  States  Steel  Corporation,  u^^grmany 
the  fundamental  difference  being  that  the  German  steel  com- 
bination is  within  the  pale  of  the  law,  while  the  United 
States  Steel  Corporation  is  attacked  by  the  United  States 
Attorney-General  as  being  interdicted  by  the  law.  The  state- 
ment given  below  is  by  Professor  T.  K.  Urdahl :  — 

"  The  German  Steel  Combine  is  the  largest  private  in- 
dustrial undertaking  in  the  world  outside  of  the  United  States. 
The  aggregate  capital  of  the  combined  firms  amounts  to  over 
1,250,000,000  marks,  and  the  average  annual  value  of  its  Magnitude 
products  exceeds  this  sum.  The  contracts  and  articles  of  combLe 
incorporation  upon  which  this  giant  combination  is  based 
were  signed  on  the  29th  of  February,  1904.  Its  duration 
was  originally  limited  to  three  years,  but  in  1907  it  was 
renewed,  and  to-day  it  stands  as  one  of  the  strongest  organi- 
zations in  the  industrial  world,  controlling,  as  it  does,  95 
per  cent  of  the  steel  output  of  Germany. 

"  The  scheme  was  not  devised  at  a  given  moment  by  the 


208 


CONCENTRATION  AND  CONTROL 


brain  of  a  genius,  but,  like  the  modern  political  state,  was 
preceded  by  a  long  series  of  experiments. 

"  Each  of  the  organizations  representing  the  stages  in  the 
Origins.  evolution  of  the  steel  combine  was  more  complex  and  more 
perfectly  adjusted  to  its  environment  than  were  its  prede- 
cessors. 

"  Instead  of  swallowing  up  and  assimilating  the  many 
competing  elements,  as  have  the  American  trusts,  the  Ger- 
man Steel  Combine  represents  a  confederation  in  which  the 
individual  members  retain  much  of  their  independence  and 
autonomy.  In  one  sense,  it  is  a  syndicate  of  syndicates, 
since  it  grew  out  of  and  took  over  the  functions  of  six  large 
cartels,  each  controlling  one  large  line  of  steel  products. 

"  There  were : 

(a)    Half-manufactured  Products  Combine,  Diisseldorf. 

(6)  Steel  Beam  Combine  of  Lower  Rheinish-Westphalian 
District,  Diisseldorf. 

(c)  German  Steel  Rail  Association,  Diisseldorf. 

(d)  German  Steel  Tie  Association,  Diisseldorf. 

(e)  South  German  Steel  Beam  Association,  St.  Johann 

a.  d.  Saar. 
(/)    German  Steel  Beam  Association,  Wiesbaden. 

"  Table  50.     Showing  Relations  of  Gebman  Steel  Cahtels 


Ore 

Pig  Iron 

Iron  and  Steel 

Finished  Steel 
Products 

Asso.  for  sale 

Armor 

of  half- 

plate 

manufac- 

tured prod- 

ucts, Diis- 
seldorf 

Steel  Beam 
Asso.,  Lower 

Steel 
Com- 
bine 

Sheet  iron 

Tin 
Sheet  steel 

Pig  Iron  Syn- 
dicate 

Rhine,  Diis- 
seldorf 

THE  SITUATION   IN   OTHER  COUNTPJES    209 


Oke 

Pig  Iron 

Iron  and  Steel 

Finished  Steel 
Prodccts 

Diisseldorf 

German  Steel 
rail  Asso., 
Diissel- 

Wire nails 
Wire  rope 

Pig  Iron 

dorf 

Woven 

(Thomas 

South  Ger- 

wire 

Asso.  for  sale 
of    Sieger- 
land     iron 

iron)  Sales 

Bureau, 

Diisseldorf 

man  Steel 
Beam  Asso., 
St.  Johann 

Steel  tubes 

ore 

Asso.  for  sale 

German  Beam 
Association, 

Steel 
Com- 
bine 

Tin  cans 
Enameled 

of  Sieger- 

Weisbaden 

ware 

land  pig 

German  Ry. 

iron,  Sie- 
gerland 

Tie  Asso- 
ciation, 

Gas  pipe 

Upper  Sili- 
cian  Pig 

Diissel- 
dorf 

Iron  Syn- 
dicate, 
Zabrze 

Upper  Sili- 
cian  Steel 
Combine 

Steel  Beam 
Dealers' 

Association 

Hardware 

Manu- 

facturers' 

Associa- 

tion 

Steel  Spring 

IManu- 

facturers' 

Associa- 

tion 

210 


CONCENTRATION  AND  CONTROL 


"  Each  of  these  was  organized  to  handle  and  sell  its  special 
products  in  its  own  field,  and  had  developed  a  successful 
organization  to  carry  out  special  purposes. 

"  In  organizing  the  steel  comhine  it  was  necessary  to  de- 
vise a  scheme  to  do  the  work  of  the  above  named  cartels 
and  in  addition  to  perform  similar  duties  for  a  large  variety 
of  firms  and  associations,  altogether  thirty-six,  out  of  which 
the  combine  was  formed.  Among  these  there  were  some 
relatively  simple  manufacturing  plants  known  as  'pure 
roller  mills,'  steel  mills  without  smelters  of  their  own,  en- 
gaged in  transforming  pig  iron  and  steel  ingots  into  roller 
mill  products.  There  were  other  firms  that  not  only  com- 
bined smelters  with  roller  mills,  but  owned  and  operated 
coal  and  ore  mines  and  conducted  wire  nail  and  steel  rail 
mills  as  well. 

"  In  order  to  carry  on  the  marketing  of  this  great  va- 
riety of  material  the  steel  combine  established  three  main 
A  producta.  divisions  or  bureaus  for  handling  A  products :  1.  half- 
manufactured  products  (ingots,  pig  iron,  steel  blocks,  etc.) ; 
2,  heavy  railroad  material ;  light  railroad  material  (ties 
and  rails).  3.  structural  iron;  (I  and  U  beams,  etc.). 
Each  division  has  separate  bureaus  for  taking  care  of 
domestic  trade  and  of  exports. 

"  In  handling  all  A  products  the  steel  combine  has  com- 
plete control  of  the  purchase  and  sale,  and  becomes  the  owner 
of  the  product  during  the  brief  space  of  time  intervening  be- 
tween the  purchase  from  the  smelter  and  sale  to  the  manu- 
facturer. This  system  is  an  improvement  upon  the  scheme 
that  prevailed  in  the  earlier  syndicates  whereby  the  syndicate 
acted  merely  as  an  agent  for  the  individual  members.  Fur- 
thermore, the  combine  exercises  the  power  to  determine  what 
the  maximum  output  shall  be,  and  apportions  among  the 
different  firms  their  quota  of  the  total  output  of  all  the  mills. 

"  In  handling  B  products,  which  include  all  other  roller  mill 
goods,  the  syndicate  pursues  an  entirely  different  policy. 
B  products.  Here  all  orders  are  received,  either  directly  from  the  con- 
sumer or  through  the  members,  and  are  distributed  by  the 
central  bureau  among  different  works  according  to  certain 


THE  SITUATION  IN  OTHER  COUNTRIES    211 

rules.  These  are :  First,  each  member  shall  receive  orders 
until  its  output,  when  compared  with  its  allotment,  is  rela- 
tively as  large  as  that  of  the  other  members  of  the  combine. 
Second,  cheapness  of  freight  charges  and  avoidance  of  cross 
freight  shall  be  considered.  Third,  so  far  as  possible  orders 
shall  be  so  distributed  as  to  stimulate  territorial  division  of 
labor.  Whenever  an  order  is  sent  to  a  steel  firm  it  must  at 
once  be  forwarded  to  the  central  bureau,  which  then  places 
the  order  with  the  firm  entitled  to  it  under  the  above  rules. 
The  wishes  of  the  person  placing  the  order  are  not  considered 
unless  his  desires  conform  with  what  is  deemed  desirable  from 
the  standpoint  of  the  combine. 

"All  producers  of  B  products  are  divided  into  groups. 
Every  group  has  allotted  to  it  a  certain  quota  of  output.  Terms  of 
which  quota  is  always  established  by  a  resolution  of  the  en-  ^  ^' 
tire  steel  combine.  The  combine  may  increase  or  decrease  the 
quota  of  any  group  at  pleasure,  but,  thus  far,  no  radical  reduc- 
tion has  been  attempted.  Instead,  a  gradual  increase, 
amounting  in  ten  years  to  nearly  33  per  cent  has  been 
authorized.  All  goods  bought  from  the  syndicate  must  be 
paid  for  on  the  fifteenth  of  the  following  month,  and  the 
syndicate  itself  settles  with  the  individual  members  on  the 
twentieth  of  the  following  month. 

"  The  price  paid  to  the  producers  is  fixed  by  the  syndicate, 
and  is  generally  called  the  table  price  (Tabellen-preise),  Price  at 
which  is  supposed  to  cover  roughly  the  cost  of  producing.  ^'°''  ' 
Prices  to  the  consumer  are  generally  quoted  free  on  board 
for  railroad  material  at  the  works,  —  for  structural  iron  at 
Diedenhofen;  and  for  half -manufactured  products  at  cer- 
tain centers  for  groups  of  producers,  five  of  which  are 
specified  in  the  syndicate  agreement.  Freight  to  the  center 
is  paid  by  the  works,  and  freight  from  the  center  is  paid  by 
the  consumer.  Should  the  consumer  be  located  nearer  to 
the  works  than  to  the  center,  he  is  still  compelled  to  pay 
freight  from  the  center.  This  saving  in  freight  is  given  to 
the  works  enjoying  the  advantage.  All  general  sales  prices 
are  fixed  quarterly  and  apply  usually  for  the  next  two  quar- 
ters.    These  prices  are  known  a,s  standard  prices,  and  only 


212    CONCENTRATION  AND  CONTROL 

in  an  exceptional  case  is  any  one  allowed  a  rebate  or  a  lower 
price.  For  extra  quality  or  exceptional  forms  of  steel  goods 
the  combine  establishes  exceptional  prices.  The  difference 
between  the  table  price  and  the  selling  price  is  noted  for 
each  group  of  products.  Careful  accounts  are  also  kept  of 
losses  and  administrative  expenses  connected  with  each 
group  of  production.  After  these  losses  and  expenses  have 
been  deducted  from  the  surplus,  the  remainder  is  dis- 
tributed pro  rata  among  the  members  of  the  group  in 
quarterly  payments. 

"  Since  1902  there  has  been  in  existence,  in  Diisseldorf,  a 
bureau  maintained  and  originally  organized  by  the  four 
syndicates  producing  half-manufactured  goods,  but  at  pres- 
ent jointly  maintained  by  the  coal  syndicate,  the  raw  iron 
syndicate,  and  the  steel  combine.  When  the  syndicate 
exports  to  foreign  countries,  it  pays  the  producers  the 
regular  table  prices,  and  the  loss  involved,  if  any,  is  charged 
against  profit  and  is  thus  shared  by  all  members  of  the  group 
Rules  of  producing  the  exported  products.  In  order  to  promote  ex- 
export,  ports  a  system  of  export  premiums  has  been  established. 
These  premiums  amounted  in  1907  to  the  following  sums : 

"  Marks  1.50  per  ton  for  coal  used  up  in  the  production 
of  steel  exported. 

"  Marks  2.50  per  ton  for  iron  ore  used  in  the  production 
of  steel  exported. 

"  Marks  15  per  ton  for  partly  manufactured  steel  (inclu- 
sive of  the  coal  and  iron  ore  premium). 

"  Marks  20  per  ton  for  steel  rails  of  all  kinds  (inclusive 
of  the  premiums  on  coal  and  raw  iron). 

"  In  addition  to  these  premiums  others  are  added  by  spe- 
cial cartels,  such  as  the  wire  nail  syndicate,  the  wire  syndicate, 
etc.  Premiums  are  ordinarily  paid  to  works  in  proportion 
to  the  amount  of  raw  material,  coal,  etc.,  used  in  the  pro- 
duction of  its  exports ;  but  a  firm  which  owns  its  coal  and 
iron  mines  is  not  always  entitled  to  the  maximum  amount 
authorized  by  the  bureau.  Only  firms  that  use  coal  and  iron 
included  in  the  output  authorized  by  the  syndicate  are 
allowed   this   privilege.     The    premiums   granted    are   also 


THE  SITUATION  IN   OTHER  COUNTRIES   213 

established  by  the  syndicate  and  may  change  from  time  to 
time  as  the  conditions  warrant. 

"  The  manufacturing  industries  claim,  and  apparently  Effect  of 
with  good  grounds,  that  the  export  policy  of  the  steel  com-  ^^^^^ 
bine  will  in  the  long  run  prove  disastrous  to  the  exports  of  the 
German  machine  industries.  Whenever  the  home  market 
is  unable  to  absorb  the  amount  of  steel  that  the  producers 
place  at  the  syndicate's  disposal,  it  is  generally  forced  to  re- 
duce its  price  to  foreign  buyers  in  order  to  get  rid  of  the  out- 
put. In  this  way,  the  foreign  manufacturer  of  machines,  by 
obtaining  his  raw  material  from  the  German  combine,  is 
placed  in  an  unduly  advantageous  position  in  competing 
with  the  German  producer.  In  1904,  for  example,  pig  iron 
was  sold  abroad  at  from  69  to  71  marks,  whereas  the  domes- 
tic buyer  was  forced  to  pay  from  82|  to  92|  marks.  The 
steel  combine  admits  this  charge,  but  claims  that  its  impor- 
tance has  been  greatly  exaggerated  by  critics  of  the  syndicate. 

"  The  combine  is  bound  by  contract  to  receive  and  pay 
for  all  the  product  of  each  individual  member,  provided  the 
same  does  not  exceed  the  quota  allotted  to  the  firm  in  ques-  Fines  and 
tion.  The  steel  thus  purchased  is  sold  by  the  combine  to  penalties, 
industrial  and  other  concerns  at  a  uniform  price  known  as 
standard  price.  Only  in  very  exceptional  cases  is  any  steel 
disposed  of  to  a  domestic  concern  at  any  other  price.  The 
standard  price  is  established  by  the  directors  of  the  combine 
at  the  beginning  of  each  quarter.  The  quota  assigned  to 
each  relates  exclusively  to  products  offered  for  sale.  Any 
member  of  the  combine  may  use  as  much  steel  and  iron  as 
it  pleases  in  its  own  factories. 

"  If  any  member  violates  the  contract  of  the  syndicate  by 
selling  directly  A  products  to  consumers,  he  is  compelled  to 
pay  a  fine  of  one  hundred  marks  per  ton  for  each  ton  of 
goods  sold.  Every  other  violation  of  the  contract  is  pun- 
ished by  a  fine  of  1000  marks  for  each  offense.  A  restricting 
penalty  of  twenty  marks  per  ton  is  imposed  upon  the  firms 
for  each  ton  they  produce  in  excess  of  the  amount  of  B  prod- 
ucts allotted  to  their  plants.  If  any  firm  produces  A  prod- 
ucts in  excess  of  its  quota,  it  is  required  to  pay  a  fine  of 


214 


CONCENTRATION  AND  CONTROL 


Increase  in 
prices. 


Increase  in 
profits. 


five  marks  per  ton.  In  the  same  way,  firms  producing  less 
than  their  quota  are  entitled  to  five  marks  per  ton  premium 
from  the  syndicate.  No  member  of  the  combine  is  allowed 
to  sell  or  rent  his  plant  to  an  outsider  without  the  consent 
of  the  syndicate.  He  is  also  forbidden  to  establish  new 
plants  or  to  o^vn  shares  in  any  company  outside  the  com- 
bine. All  differences  of  opinion  between  members  of  the 
combine  are  to  be  settled  by  a  Board  of  Arbitration,  and 
under  no  circumstances  are  to  be  carried  into  the  courts. 
The  syndicate  exercises  no  control  whatever  over  the  method 
of  securing  iron  ore  or  other  raw  material  by  the  individual 
members.  It  also  refrains  from  interfering  with  labor  strug- 
gles, strikes,  or  other  disputes. 

"  The  combine  has  secured  sufficient  orders  to  enable  all 
its  members  to  increase  their  output  about  33^  per  cent  and 
at  the  same  time  has  secured  gradually  increasing  prices. 
Increased  output  in  large  scale  production  necessarily  results 
in  cheapening  the  cost  per  unit  of  production  to  the  limit 
of  maximum  efiiciency. 

"As  a  result  of  the  combine,  the  profitableness  of  steel 
works  and  the  value  of  steel  stocks  has  increased  materially 
since  the  syndicate  came  into  existence.  Apparently,  there- 
fore, the  syndicate  has  been  decidedly  beneficial  to  the  plant 
owner.  Still  it  must  not  be  forgotten  that  the  period  in 
which  it  has  been  in  existence  has  been  one  of  favorable  in- 
dustrial conditions.  The  gross  profits  of  fourteen  of  the 
largest  works  increased,  in  the  year  1904-1905,  31.8  per  cent, 
whereas  the  capital  invested  in  the  works  in  question  was  in- 
creased only  8.6  per  cent.  Averages,  however,  do  not  indicate 
fully  the  influence  of  the  steel  trust  upon  each  individual 
member.  Generally  the  larger  and  more  powerful  members 
have  benefited  more  than  the  weaker  ones  through  its  activ- 
ity, and  in  some  cases  the  condition  of  the  weaker  members 
has  deteriorated  rather  than  improved.  While  some  com- 
panies have  undoubtedly  been  able  to  remain  in  existence  as 
a  result  of  the  syndicate's  activity,  that  would  under  the 
competitive  system  have  been  forced  to  the  wall,  others  that 
might  have  developed  under  the  competitive  system  have 


THE  SITUATION  IN   OTHER  COUNTRIES      215 

apparently  been  held  back  by  the  cartel's  policy  of  com- 
bination. 

"  If  the  combine  had  not  been  created,  the  smaller  works 
would  probably  have  been  swallowed  up,  one  after  another, 
until  the  steel  industry  of  Germany  developed  into  a  trust- 
like  consolidation  resembling  the  United  States  Steel  Corpo- 
ration. This  tendency  has  been  restrained  rather  than 
eliminated,  since  numerous  consolidations  have  been  made 
within  the  combine  during  the  period  in  which  the  steel 
syndicate  has  existed, 

"  The  most  important  advantage  which  the  steel  syndi- 
cate has  secured  for  its  members  is  a  diminution  in  the 
costs  of  handling  and  sale  of  steel.  The  average  per  ton  Lowered 
cost  has  amounted  to  only  25  pfennig,  whereas  it  is  claimed  ^°^^^' 
that  the  cost  for  the  same  service  in  the  American  steel 
combination  is  S2  per  ton.  The  comparison  is  not  correct, 
however,  since  the  $2  per  ton  in  the  latter  includes  a  large 
number  of  overhead  charges,  which  in  the  German  works 
are  borne  by  the  individual  firms. 

"  Costs  of  production  have  also  been  cheapened  by  the 
steel  combine  as  a  result  of  the  increased  division  of  labor 
made  possible  by  its  creation.  Under  the  cartel  contract 
it  has  been  possible  for  one  mill  to  exchange  orders  for  cer- 
tain kinds  of  goods  for  which  its  equipment  was  inadequate 
with  another  mill  whose  facilities  for  making  this  class  of 
goods  were  more  up-to-date.  In  this  way  it  has  been 
possible  for  some  mills  to  produce  on  a  large  scale  relatively 
few  kinds  of  steel  products,  such  as  steel  rails,  beams,  etc. 

Another  advantage  obtained  by  the  members  from  the 
existence  of  the  cartel  is  in  dealing  with  strikes  and  labor  Advantages 
difficulties.  Whenever  a  strike  threatens,  the  concern  can  ^  strikes. 
transfer  its  quota  to  some  other  mill  where  there  are  no 
labor  difficulties.  Furthermore,  the  syndicate  contract 
contains  a  provision  releasing  the  mill  from  obligation  to 
deliver  goods  whenever  a  strike  is  on.  Such  an  arrange- 
ment would  have  been  impossible  under  the  competitive 
system,  and  losses  growing  out  of  strikes  would  undoubtedly 
have  been  much  greater  if  the  syndicate  had  not  existed. 


216 


CONCENTRATION  AND  CONTROL 


Quality  of 
steel. 


StabiUty. 


Harsh  sale 
conditions. 


"  In  general  it  is  feared  that  the  organization  of  the  steel 
industry  in  the  form  of  the  steel  combine  will  result  in  a 
gradual  deterioration  in  the  quality  of  steel  products  and 
that  the  chief  object  of  the  combine  will  become  quantity 
rather  than  quality.  On  the  other  hand,  it  is  also  clear 
that  the  steel  works  will  be  able  to  specialize  much  more 
successfully  under  the  cartel  regime  than  has  been  possible 
under  the  competitive  system.  The  steel  producers  are 
now  able  to  devote  themselves  solely  to  the  problem  of 
production,  since  the  cartel  takes  over  the  entire  distri- 
bution of  the  products.  In  addition  to  this  tendency, 
the  owners  of  smelters  are  not  forced  to  devote  so  much 
time  to  the  problem  of  the  purchase  of  raw  materials,  since 
this  side  of  the  business  has  also  been  systematized  so  that 
purchases  are  made  on  a  large  scale  by  joint  agreements 
between  iron  ore  owners  and  steel  producers. 

"It  is  also  asserted  that  the  steel  combine  has  secured 
much  greater  stability  in  the  iron  and  steel  market  than 
was  possible  before  it  came  into  existence.  This  stability 
has  made  it  practicable  for  manufacturers  to  avoid  losses 
which  formerly  were  almost  inevitable.  It  has  been  pos- 
sible for  the  cartel  to  shift  the  burden  more  and  more  upon 
the  less  organized  manufacturers  who  use  steel  products 
as  raw  material.  Consequently  the  last  and  unorganized 
stages  of  steel  product  manufacture,  e.g.  machine  making, 
etc.,  have  been  forced  to  bear  the  greater  proportion  of  the 
burdens  caused  by  a  gradual  increase  in  prices.  These 
manufacturers  will  undoubtedly  be  able  to  shift  a  part  of 
the  burden  upon  the  final  consumer.  As  yet,  this  process 
has  not  been  entirely  completed  in  a  great  many  lines. 

"  In  times  of  business  prosperity  the  steel  combine  fulfills 
its  contracts  only  partially  and  this  also  constitutes  ground 
for  complaint  on  the  part  of  purchasers  of  steel  goods. 

"  Many  complaints  are  also  directed  against  the  strict 
conditions  of  sale  imposed  by  the  combine.  It  is  main- 
tained that  the  wishes  of  customers  are  not  given  due  con- 
sideration, that  they  are  compelled  to  take  the  quality  of 
steel  which  the  combine  sees  fit  to  give  them,  regardless 


THE  SITUATION   IN   OTHER  COUNTRIES    217 

of  the  special  needs  of  their  business.  Furthermore,  it  is 
asserted  that  the  combine  deUvers  steel  to  certain  firms, 
from  different  plants,  which  makes  it  difl&cult  for  the 
manufacturer  to  secure  as  uniform  a  grade  of  goods  as  he 
had  been  able  to  obtain  when  he  bought  all  his  steel  from 
the  same  firm.  The  steel  syndicate  claims  that  most  of 
these  complaints  are  based  upon  prejudice  and  imaginary 
differences  in  quality. 

"A  comparison  of  the  total  output  of  steel  in  Germany 
with  the  total  steel  output  of  the  United  States  during  the 
last  ten  years  demonstrates  the  fact  that  for  some  reason  Effect  on 
or  other  the  steel  production  has  been  much  more  stable  steel  output. 
in  Germany  than  in  America.  The  crises  of  1903  and  of 
1907  resulted  in  a  violent  slump  in  the  production  of  Amer- 
ica. These  crises  had  relatively  little  effect  upon  the  work 
of  the  steel  mills.  Whether  the  absence  of  fluctuation  in 
Germany  can  be  traced  back  to  the  steel  cartels,  or  whether 
it  is  due  to  the  fact  that  German  industrial  conditions  are 
more  stable  than  they  are  in  America,  is  a  question  which 
cannot  be  easily  answered.  It  is  probable,  however,  that 
the  German  cartels  have  solved  the  problem  of  adjusting 
the  supply  to  probable  demands  about  as  successfully,  if 
not  more  successfully,  than  the  American  steel  combine." 

For  the  great  German  steel  combine,  thus  described  by 
Professor   Urdahl,   controlling  ninety-five   per  cent   of   the 
industry  of  the  country,  it  is  clear  that  cooperation  is  allowed  Surplus 
to  proceed  to  the  extent  of  monopoly,  and  that  without  ^tiow 
any  administrative  control  by  the  government  or  attempt  prices. 
to  prevent  the  combination  from  fixing  prices  which  the 
markets  will   stand.     It   is  notable   that  the   combination 
sells  steel  abroad  lower  than  at  home ;    in  some  cases  as 
much  as  twenty  per  cent  cheaper,  in  this  respect  following 
the  same  policy  as  the  United  States  Steel   Corporation. 
This  is  possible  because  Germany,  like  the  United  States,  has 
a  protective  tariff;  and  therefore  the  foreign  producer  can- 
not enter  the  domestic  trade  of  these  countries.     This  is 
reserved  for  the  home  corporations.     If  it  were  not  for  the 
fact  of  Germany's  tariff,  it  is  plain  that  it  would  not  be 


218    CONCENTRATION  AND  CONTROL 

possible  to  keep  the  level  of  prices  for  iron  and  steel  higher 
at  home  than  they  are  in  the  world's  markets.  The  same 
is  of  course  true  for  the  United  States. 

The  Potash  Industry.^  —  One  of  the  most  interesting  of 
the  combinations  in  Germany  is  that  of  the  potash  industry. 
In  the  Stassfurt  district  are  the  greatest  potash  mines  of 
the  world.  A  comprehensive  law  concerning  potash  was 
passed  in  1910  creating  a  board  of  apportionment.  This 
board  fixes  the  amount  which  is  to  be  sold  during  any  year ; 
it  determines  the  proportion  that  each  producer  —  and  they 
are  some  fifty  in  number  —  shall  be  allowed  to  mine.  Any 
producer  may  exceed  his  allotment  by  ten  per  cent ;  but  if 
he  does,  the  excess  is  deducted  from  his  next  year's  allow- 
ance. If  a  company  exceeds  this  maximum  it  must  pay  a 
greatly  increased  tax  upon  the  excess.  The  companies 
are  forbidden  to  lower  grades.  The  maximum  price  is 
fixed  for  each  grade  of  the  product ;  and  not  only  this,  but 
freight  rates  are  adjusted,  so  that  the  prices  are  equalized 
at  different  commercial  centers,  just  as  the  anthracite 
combination  fixes  the  price  of  that  article  at  Boston  and 
Buffalo.  The  law  also  provides  that  the  price  of  potash 
in  Germany  shall  not  be  greater  than  it  is  abroad.  The 
taxes  on  the  potash  companies  are  reserved  for  the  adminis- 
tration of  the  governmental  machinery  necessary  to  con- 
trol the  industry.  Each  company  must  give  a  full  report 
of  all  its  transactions.  The  books  are  open  to  the  board 
of  apportionment.  There  is  an  appeal  from  the  board  of 
apportionment  to  a  commission,  just  as  in  the  proposed 
plan  allowing  cooperation  in  America  there  is  appeal  from 
the  commission  to  the  courts.      (See  pp.  242-243.) 

Before  the  above  law  was  passed  there  was  a  syndicate 
which  controlled  the  potash  industry.  When  this  syndi- 
cate agreement  terminated,  two  companies  broke  away 
and  made  contracts  for  large  sales  of  potash  in  America. 
This  situation  led  to  the  above  law,  which  embodies  many 
of  the  regulations  previously   contained  in  the  syndicate 

1  The  full  text  of  the  potash  law  is  given  Hearings,  Senate  Interstate  Com- 
merce Committee,  Part  IX,  pp.  489-497. 


THE  SITUATION  IN   OTHER  COUNTRIES      219 

agreements.     The  law  was  therefore  a  direct  outgro\\i;h  of 
previous  experience  under  the  pressure  of  an  emergency.   Combina- 
One  reason  which  was  strongly  urged  for  its  passage  was  of^^^ef^ 
that  it  would  result  in  the  conservation  of  the  potash  re-  ment. 
sources    in    Germany.     Before    combination,    the    potash 
industry  had  all  the  difficulties  of  many  competing  con- 
cerns with  regard  to  a  natural  resource  limited  in  extent. 
Prices  were  too  high  or  too  low.     The  plan  of  controlling 
the  potash  industry  in  Germany  promises  to  work  to  the 
satisfaction  of  the  producer,  and  to  the  satisfaction  of  the 
government,  which  is  a  part  owner  in  the  potash  mines. 

It  is  notable  that  for  the  potash  industry,  in  which  com- 
plete monopoly  is  allowed,  restrictions  are  introduced  which 
are  not  regularly  applied  to  the  cartel  in  Germany.  The  Complete 
board  of  apportionment  has  authority  to  control  prices ;  ^0^°^^^  ^ 
not  only  so,  but  to  prohibit  the  selling  of  material  abroad 
cheaper  than  in  Germany.  In  both  of  these  respects  the 
policy  of  the  government  is  an  advance  over  that  which 
applies  to  the  steel  combination.  That  combination,  while 
not  a  complete  monopoly,  controls  95  per  cent  of  the  out- 
put of  the  country;  and  there  is  no  government  regulation 
of  prices  either  at  home  or  abroad.  In  consequence  of 
this,  as  we  have  seen,  prices  are  kept  up  at  home  and  re- 
duced abroad  sufficiently  to  sell  the  surplus  product. 

While  in  Germany  cooperation  is  permitted  to  an  almost 
unlimited  extent,  the  laws  are  there  very  severe  against 
unfair  competition.  The  types  of  unfair  competition  are 
closely  defined,  and  a  party  who  is  injured  through  their 
violation  may  recover  damages. 


Section  3 

AUSTRIA 

In  Austria  the  laws  make  illegal  all  agreements  to  raise 
prices  and  other  contracts  to  the  detriment  of  the  public. 
There  are  exceptions  to  the  extent  that  agreements  which 
maintain  prices  in  times  of  crises,  reduce  prices,  and  secure 


220    CONCENTRATION  AND  CONTROL 

more  favorable  conditions  of  production,  such  as  lowering 
of  freight    rates,    large   scale   purchases,    etc.,    are  lawful. 
Law  against  While,  upon  the  whole,  the  law  of  Austria  is  against  cartels, 
cartels.  ^jjg  industrial  situation  is  similar  to,  but  not  identical  with, 

that  of  Germany,  Combinations  extensively  exist.  Some 
of  the  more  successful  ones  are  those  in  iron,  sugar,  and 
petroleum.  Ordinarily  these  combinations  control  outputs 
and  prices.  This  may  be  accomplished  through  selling 
bureaus  and  by  division  of  markets. 

The  courts,  acting  under  the  laws  stated,  have  been  less 

favorable  to  the  combinations  in  their  decisions  than  the 

courts  of  Germany.     While,  in  some  cases,   contracts  for 

the  division  of  the  market,  fixing  of  prices,  etc.,  have  been 

Combina-      declared  illegal,  these  decisions  have  not  been  any  more  suc- 

*^°^.  cessful  in  checking  the  tendency  toward  combination  than 

continues.  °.  ...  •     i       i       i  i 

have  similar  decisions  in  this  country;  indeed,  they  have 
somewhat  accelerated  mergers  in  Austria  as  they  have  greatly 
in  this  country.  According  to  Jenks  ^  the  tendency  to  com- 
bination has  been  retarded  to  some  extent  by  the  regulation 
requiring  publicity  in  business,  and  because  of  the  fact  that 
taxes  are  heavier  on  corporations  than  on  private  firms. 

Looking  toward  the  future  in  Austria,  a  government 
commission  has  recommended  the  recognition  of  combina- 
tions by  law  and  their  supervision  and  regulation  by  gov- 
ernment authority. 

Section  4 

FRANCE 

In  France  the  laws  provide  heavy  penalties  against  price 
agreements  for  food  products.  The  courts  have  held  that 
Law  against  combinations  which  do  not  have  the  purpose  of  raising 
prices,  but  to  prevent  prices  from  falling  and  to  regulate 
their  fall,  are  lawful.  Also  combinations  which  do  not 
strive  to  raise  prices  but  only  to  secure  a  market  so  as  to 
put  them  in  a  position  to  compete  with  their  rivals  have 
been  held  to  be  lawful. 

i"Ency.  Brit.,"  37,  338. 


combina' 
tions 


THE  SITUATION   IN   OTHER  COUNTRIES      221 

One  of  the  effects  of  the  laws  against  combinations  and 
agreements  in  France  has  been  to  drive  them  to  secrecy, 
the  same  as  in  this  country.  It  is  therefore  difficult  to 
ascertain  the  extent  to  which  combinations  exist,  but  it  is 
certain  that  they  are  widespread. 

Selling    bureaus    have    been    established    which    receive  Cooperation 
orders    and    fix    prices    for   the    establishments    concerned.   ^°®^  °^' 
This  form  of  organization  has  not  been  successfully  attacked 
in  the  courts.     These  agreements  and  selling  agencies  affect 
many  industries,  including  sugar,  petroleum,  and  porcelain/ 

Section  5 
GENERAL   STATEMENTS 

Belgium  has  many  cartels  which  are  very  similar  to 
those  of  Germany,  and  often  the  cartels  in  the  two  coun- 
tries are  closely  related.  Some  other  countries  having  cartels 
for  various  products  are :  Bulgaria,  Egypt,  Italy,  Portugal, 
Roumania,  Spain,  Scandinavia,  Switzerland,  and  Russia. 

From  the  foregoing  summary  regarding  the  situation  in 
foreign  countries  it  appears  that  the  premises  with  which 
Great  Britain  and  Germany  start  concerning  combination  The  faith  of 
in  restraint  of  trade  is  just  the  reverse  of  our  own.     Our  Bntam  and 

....  .  /^  1        Cjermany  in 

faith  is  in  competition ;  their  faith  is  in  cooperation.  Clearly  cooperation, 
the  theory  of  the  United  States  or  that  of  Great  Britain 
and  Germany  is  wrong.  In  this  country  there  exists  a 
popular  distrust  and  fear  of  combination  and  the  desire 
to  strike  it  wherever  it  appears;  in  Germany  and  Great 
Britain  combination  is  accepted  as  a  necessary  step  in  com- 
mercial progress.  The  expanding  trade  of  Great  Britain 
and  Germany  gives  strong  evidence  of  the  merit  of  their 
point  of  view.  Those  who  have  watched  the  develop- 
ment of  Germany  since  the  Franco-Prussian  war  have  been 
amazed  at  the  rise  of  that  country  to  a  position  in  com- 
merce at  home  and  abroad  second  to  no  country  in  the 
world.     In  many  lines  of  manufacture,  for  instance,  steel, 

1  "  Ency.  Brit.,"  37,  338-389. 


222    CONCENTRATION  AND  CONTROL 

the  foreign  trade  of  Germany  and  Great  Britain  vastly 
exceeds  our  own;  not  only  so,  but  it  is  more  rapidly  ex- 
panding. It,  of  course,  camiot  be  held  that  the  astonishing 
advance  of  Germany  in  commerce  and  the  increase  in  for- 
eign trade  of  Germany  and  Great  Britain  are  due  exclusively 
to  freedom  to  cooperate  in  business  as  well  as  freedom  to 
compete ;  but  it  may  be  safely  asserted  that  this  was  one 
of  the  essential  conditions  to  their  great  success. 

Section  6 

INTERNATIONAL   COMBINATIONS 

Combinations  not  only  exist  in  the  European  countries 
and  in  the  United  States,  but  for  many  industries  inter- 
national  cooperation  has  begun  between  the    great   com- 
panies in  different  countries.     Macrosty  ^  says  that  "rails, 
Wide  extent  tubes,     nails,     screws,    sewing    thread,    bleaching    powder, 
natirmai         borax,  nitrates,  and  tobacco  are  to  a  greater  or  less  degree 
combina-       brought    under   international    control,    while,    at   least    till 
*^°°'  lately,   dynamite  was   so   controlled,   and   repeated  efforts 

have  been  made  similarly  to  syndicate  the  whole  steel 
trade."  The  forces  which  have  produced  such  interna- 
tional combinations  are  the  same  as  those  which  have 
resulted  in  those  confined  to  one  country,  the  maintenance 
of  prices,  division  of  territories,  and  limitation  of  production. 
Perhaps  the  most  important  of  these  combinations  is 
the  International  Rail  Syndicate,  which  was  formed  in  1883 
between  Great  Britain,  Germany,  and  Belgium.  Under 
this  agreement  England  was  awarded  66  per  cent  of  the 
business,  afterwards  reduced  to  633^  per  cent ;  Germany, 
27,  afterwards  29  per  cent ;  and  Belgium  7,  afterwards  l}^ 
per  cent.  Later  this  pool  was  broken  up  with  a  fall  of 
prices,  but  in  1904  it  got  together  again  on  a  different 
basis,  that  of  division  of  territory.  In  1905  the  United 
The  steel       States  was  taken  into  the  arrangement.     Also,  there  have 

ra   syndi-      ^^ggn  international  combinations  for  a  number  of  other  iron 

cate. 

and  steel  products. 

1  "The  Trust  Movement  in  British  Industry,"  pp.  63-64,  342. 


THE  SITUATION  IN  OTHER  COUNTRIES    223 

One  of  the  most  important  of  the  international  combina- 
tions is  that  of  the  marine  interests.  In  1902  the  Inter- 
national Mercantile  Marine  Company  was  organized  under 
the  laws  of  New  Jersey,  with  a  capital  of  $120,000,000,  The  marine 
one  half  common  and  one  half  preferred  stock.  The  com-  ^y^'^^'^^te. 
bination  included  the  following  lines :  Leyland  (49  vessels, 
295,000  tons) ;  White  Star  (29  vessels,  181,000  tons) ;  Atlan- 
tic transports  (23  vessels,  183,000  tons)  ;  American  and 
Red  Std,r  (24  vessels,  181,000  tons) ;  Dominion  (14  vessels, 
110,000  tons). 

Without  being  a  member  of  the  International  Mercantile 
Marine  Company,  the  Hamburg  American  and  North  Ger- 
man Lloyd  Companies,  with  190  vessels  and  1,093,000  tons, 
have  entered  into  a  working  agreement  with  it  by  which  a 
committee  composed  of  four  representatives,  two  of  which  are 
named  by  the  International  Mercantile  Marine  Company  and 
two  by  the  German  company,  are  authorized  to  fix  rates,  dis- 
tribute steerage  passengers,  etc. 

Table  51.     Showing  Constitution  of  Shipping  Combine 

o.  International     Mercantile    Marine    [  Combina- 
Company  tion 


North  German  Lloyd  ] 

Hamburg-American  Company         [  Cartel 


b.  Belgian  Red  Star  Line. 

c.  Holland-American  Line. 

d.  Compagnie  Trans-Atlantique. 

e.  Cunard  Line. 


Cartel, 
known     as 
Shipping 
Combine 


Another  shipping  combine  is  said  to  control  the  freight 
business  between  New  York  and  the  Far  East.  Both  of 
these  marine  companies  are  under  attack  for  violation  of 
the  Sherman  antitrust  law.^ 

^  United  States  v.  Hamburg-Amerikanische  Packetfahrt-Actien-Gesell- 
schaft,  and  others,  U.  S.  Circuit  Court,  Southern  District  N-  Y.  2d  Dist.; 
United  States  v.  American- Asiatic  Steamship  Company,  and  others,  District 
Court  of  the  United  States  for  Southern  District  of  N.  Y. 


224    CONCENTRATION  AND  CONTROL 

At  Jena  there  is  a  central  bureau.  Each  member  of  the 
cartel  sends  a  statement  to  the  bureau,  giving  the  freight 
and  passenger  business  of  the  company.  If  a  member  of 
the  combination  has  carried  more  than  his  share,  he  pays 
the  surplus  into  the  treasury  or  pool,  which  in  turn  reim- 
burses the  companies  whose  businesses  have  been  curtailed. 

Oil  is  one  of  the  businesses  in  which  the  international 
combination  and  cooperation  have  gone  far,  in  some  places 
there  being  union,  in  others  division  of  territory. 

As  we  have  already  seen  the  American  Tobacco  Com- 
pany made  an  agreement  with  the  Imperial  Tobacco  Com- 
pany under  which  each  was  to  respect  the  home  territory 
of  the  other,  and  a  combination  company  was  created,  the 
British-American  Tobacco  Company,  through  which  the 
two  handled  their  foreign  business. 

The  nitrate  combination  regulates  prices  and  output. 
Some  businesses  have  become  international  by  one  of  the 
great  companies  buying  other  companies  in  the  same  busi- 
ness, or  establishing  branches  in  foreign  countries.  The 
latter  applies  to  a  number  of  the  greater  companies  of  the 
United  States,  illustrated  by  the  Westinghouse  Company. 

It  is  not  the  intention  to  give  a  detailed  description  of 
Combina-  international  combinations,  since  this  would  unduly  ex- 
pand this  book.  That  international  combination  has  gone 
so  far  shows  the  world-wide  extent  of  the  tendency  for 
cooperation  in  business. 

The  United  States  cannot  successfully  compete  in  the 
world's  markets  without  large  industrial  units.  When  com- 
bination and  cooperation  are  permitted  not  only  in  foreign 
countries  but  as  between  foreign  countries,  if  the  manufac- 
turers of  the  United  States  are  excluded  from  uniting  and 
from  taking  part  in  international  cooperations,  they  will  not 
be  important  factors  in  the  world's  markets.  No  nation  can 
walk  by  itself  in  the  world's  trade.  If  the  Sherman  act  is 
rigidly  enforced  in  its  present  form,  and  the  administration 
apparently  regards  this  duty  as  resting  upon  it,  American 
manufacturers  must  look  mainly  to  their  home  markets. 


tion  world- 
wide. 


CHAPTER  V 

REMEDIES 

Section  1 

SPECIFICATIONS   TO  BE   MET 

Before  presenting  a  constructive  plan  to  meet  the  existing 
situation  in  trade,  it  will  be  well  to  give  specifications  regard- 
ing the  things  that  are  to  be  accomplished  and  the  things  that 
are  to  be  avoided,  the  same  being  based  upon  the  statement 
of  facts  contained  in  the  previous  chapters.  In  making 
these  specifications,  the  aim  will  be  to  present  a  consensus  of 
opinion,  not  personal  views. 

1.  While  the  existence  of  a  non-competitive  field,  that  of 
the  public  utilities,  is  admitted,  and  in  many  cases  for  such, 
monopoly  must  exist,  outside  of  public  utilities  there  is  still 
a  large  field  for  competition.     Competitive  conditions  should 

be  retained  in  the  industries.  Certainly  there  should  re-  Competi- 
main  competition  for  business ;  there  should  remain  competi-  |:g°aiQgj^^ 
tion  for  quality;  there  should  remain  competition  in  prices 
so  far  as  this  is  consistent  with  other  specifications.  A  con- 
dition should  not  be  allowed  to  arise  such  as  to  render  com- 
petition in  prices,  quality,  or  service  impossible.  In  order 
to  retain  freedom  of  competition  it  will  be  necessary  to  pre- 
vent monopoly.  In  those  industries  in  which  freedom  of 
competition  does  not  now  exist,  the  facts  regarding  individ- 
ual industries  (given  pp.  104-150)  show  that  this  condition 
has  arisen  and  has  been  maintained  very  largely  through 
unfair  practices  or  by  monopoly. 

2.  Unfair  practices  must  be  prohibited  and  unfair  advan- 
tages must  not  be  permitted.     Only  so  will  it  be  possible  to 

Q  225 


226  CONCENTRATION  AND  CONTROL 

Unfair  retain  competition.*    Some  of  the  more  important  regula- 

practices.       tions  should  be  as  follows  :  — 

(a)  All  corporations  should  be  placed  upon  the  same  basis 
with  reference  to  common  carriers.  Discrimination,  rebates, 
drawbacks,  and  exceptional  services  should  not  be  allowed. 
(6)  Business  should  not  be  allowed  to  be  carried  on  by  se- 
cret companies  or  combinations.  The  complete  organiza- 
tion of  any  corporation  should  be  open.  No  company  should 
appear  to  be  independent  which  is  not  so. 

(c)  The  grosser  forms  of  unfair  competition,  such  as  es- 
pionage of  business  competitors,  bribing  of  men  in  the  em- 
ploy of  competitors,  etc.,  should  be  prohibited. 

(d)  No  agreement  should  be  allowed  requiring  exclusive 
dealing ;  nor  should  any  rebate  or  advantage  be  gained  from 
exclusive  dealing. 

(e)  Local  selling  at  or  below  cost  to  kill  competition  should 
be  prohibited. 

3.  Reasonable  cooperation  between  corporations  should 
be  permitted.  It  is  believed  that  in  business  under  modern 
conditions,  cooperation  not  competition  should  be  the  con- 
Cooperation  trolling  word.  Sufficient  cooperation  should  be  allowed  to 
mitted  ^^'  prevent  fierce  and  unrestrained  competition  which  goes  to 
the  extent  of  reducing  prices  below  a  reasonable  amount. 
Only  by  cooperation  can  the  enormous  wastes  of  competi- 
tion be  avoided.  In  this  connection  the  form  of  the  solution 
which  may  be  adopted  to  secure  cooperation  may  depend 
very  largely  upon  the  definition  of  reasonable  and  unreason- 
able. If  all  restraints  of  trade  are  reasonable  which  do  not 
produce  monopoly,  then  we  may  accept  the  common  law 
principle  that  unreasonable  restraint  of  trade  is  not  to  be  al- 
lowed, and  under  this  principle  secure  cooperation.  But  if 
unreasonable  restraint  is  to  be  narrowly  construed,  so  as  to 
interdict  all  combinations  which  divide  territories,  regulate 
outputs  and  make  price  agreements,  then  unreasonable  re- 
straint of  trade  must  be  redefined  by  statute  in  order  to 
secure  the  benefits  of  cooperation.     Much  of  the  confusion  in 

1  Details  as  to  the  kinds  of  unfair  practices  which  have  arisen  in  business 
may  be  found  by  reference  to  Chapter  II. 


REMEDIES  227 

the  thinking  and  discussion  concerning  concentration  is  at 
this  point,  some  persons  having  in  their  minds  that  all  re- 
straints of  trade  are  reasonable  which  do  not  go  to  the  ex- 
tent of  monopoly,  and  others  holding  that  almost  any  form 
of  cooperation  in  business  is  unreasonable  restraint  of 
trade. 

Just  as  cooperation  of  capital  should  be  allowed,  so 
cooperation  of  laborers  should  be  permitted.  The  laborers 
find  themselves  prevented  from  cooperation  by  the  Sherman 
law  precisely  as  have  the  industrial  combinations.^  It  is 
clear  that  unless  laborers  may  unite  in  trade  unions,  in  joint 
bargaining,  and  in  all  legitimate  matters  which  concern 
them,  they  will  be  helpless.  Not  only  should  coopera- 
tion between  capitalists  and  cooperation  of  laborers  be  al- 
lowed, but  cooperation  of  the  two  groups  should  be  per- 
mitted. In  short,  it  is  advocated  that  the  principle  of 
cooperation  should  control  in  commerce,  including  both 
laborer  and  capitalist. 

4.  Corporations  should  be  allowed  to  be  of  sufficient  mag- 
nitude to  give  the  highest  economic  efficiency  in  order  that 
(a)  they  may  be  able  to  supply  the  needs  of  our  o^vn  people 
at  the  lowest  practicable  rate,  and  (b)  to  secure  an  increased 
proportion  of  foreign  trade.  As  to  magnitude  which  may  be  Sufficient 
allowed  without  the  presumption  that  in  consequence  of  this  ^r^^."  ^ 
there  is  unreasonable  restraint  of  trade,  it  may  be  suggested  ciency 
as  a  working  basis  that  no  one  corporation,  including  all  its 
subsidiary  companies,  should  be  permitted  to  control  more 
than  50  per  cent  of  any  line  of  business  of  the  country. 
There  is  no  sanctity  in  the  number  50,  and  this  may  be  re- 
duced to  40  per  cent  or  increased  to  60  per  cent  if  either  be 
more  acceptable  to  the  public.  This  rule  is  not  only  to  apply 
to  a  corporation  as  a  whole  but  to  each  of  the  different  lines 
of  business  which  may  be  covered  by  it.  If  this  principle  be 
accepted,  it  is  natural  to  say  that  any  corporation  which  has 
more  than  50  per  cent  of  the  business  of  the  country  is  a 
monopoly,  and  that  monopoly  is  unreasonable  restraint  of 
trade. 

» Hearings,  Part  XX,  pp.  1727-1778. 


228    CONCENTRATION  AND  CONTROL 

5.  It  must  be  possible  to  secure  the  freedom  of  competition 
defined  under  1  and  the  prohibition  of  the  unfair  practices 
under  2  practically  without  cost  to  the  complainant.    It  is  the 

Justice  theory  that  all  are  equal  before  the  law,  but  everybody  knows 

without  cost  ^j^-    ^]^gQj.y  jg  unsound.     Under  modern  conditions,  in  which 

to  complaui-  ''  ' 

ant.  there  are  giant  corporations  with  substantially  unlimited 

funds,  the  man  who  has  a  small  business  is  not  equal  to  such 
organizations  before  the  law  because  of  his  inability  to  bear 
the  expense  of  the  contest.  If  concentrations  of  industry  be 
allowed  to  exist,  some  machinery  must  be  devised  under  which 
the  weak  man  may  be  sure  of  fair  practices  and  an  open 
field. 

6.  For  all  businesses  in  which  there  is  any  restraint  of 
trade,  reasonable  or  unreasonable,  through  cooperation,  there 

Ftdl  pub-       should  be  full  publicity.     As  soon  as  cooperation  is  permitted, 
^^^  ^'  the  business  as  a  matter  of  fact  is  invested  with  a  public  in- 

terest ;  and  even  if  not  declared  to  be  a  public  utility,  if  any 
privileges  are  given  for  cooperation,  or  for  magnitude,  which 
involves  restraint  of  trade  to  the  extent  of  controlling  the 
market,  all  the  operations  of  the  company,  including  the 
profits,  should  be  matters  of  public  knowledge. 

7.  Corporations  should  be  required  so  to  conduct  their 
businesses  as  to  conserve  the  natural  resources.  This  will 
involve  the  restraint  of  competition  so  as  to  prohibit  waste. 
With  reference  to  the  future,  this  specification  is  one  of 

Conserve  paramount  importance.  The  difficulties  regarding  produc- 
tion and  distribution  of  wealth  we  are  sure  to  solve.  In  the 
meantime  there  may  be  loss  and  waste  and  unjust  distribu- 
tion. There  is  not  of  necessity  permanent  loss.  If,  how- 
ever, natural  resources  of  great  value  are  allowed  to  be  wasted 
or  destroyed,  this  is  a  perpetual  loss  to  the  race.  Thus, 
as  has  already  been  pointed  out  (pp.  89-94),  if  a  large  per- 
centage of  coal  be  wasted  under  severely  competitive  condi- 
tions of  mining,  if  there  be  waste  in  the  mining  of  our  metals 
so  that  a  considerable  part  of  the  deposits  are  left  in  the 
ground  in  such  a  condition  that  they  cannot  in  the  future 
be  recovered, — this  is  an  irreparable  loss  which  permanently 
impoverishes  our  people. 


resources. 


REMEDIES  229 


8.    Cooperating  corporations  should  give  just  rewards  to  Just  re- 
wards 

labor. 


labor.      The  wages  paid  should  be  fair ;  and  fair  wages  for  a  ^^""^^  *° 


man  means  wages  such  that  he  can  support  a  family  under 
decent  conditions  so  that  his  children  may  have  open  before 
them  the  avenues  of  opportunity. 

9.  The  business  of  the  great  corporations  should  be  con- 
ducted imder  good  social  conditions.  It  has  been  charged 
that  some  of  the  great  corporations  require  too  long  hours  of 
labor,  and  that  the  work  is  carried  on  under  very  unfavorable 
conditions.  On  the  contrary,  with  regard  to  other  great  cor-  Good  social 
porations,  it  is  claimed  that  in  these  respects  the  larger  or-  conditions, 
ganizations  are  in  a  better  position  than  the  smaller  ones. 

Both  of  these  statements  appear  to  be  true.  So  far  as 
large  businesses  are  allowed  to  exist,  because  of  their  magni- 
tude, these  social  factors  become  of  special  importance ;  and 
the  great  concentrations  which  have  exceptional  strength 
or  magnitude  should  not  be  allowed  to  take  advantage  of 
labor  in  hours,  service,  sanitation,  or  other  social  factors. 

10.  Fair  prices  should  be  obtainable  by  individuals  or 

groups  selling  to  the  great  corporations.     Corporations  should  Fair  prices, 
no  more  be  allowed  unduly  to  depress  prices  for  materials 
necessary  for  their  manufactories  than  they  should  be  allowed 
unduly  to  depress  prices  of  labor. 

11.  Corporations  should  not  be  allowed  to  charge  excessive 
prices  to  the  consumer.  So  far  as  the  public  in  general  is 
concerned,  the  greatest  complaint  with  respect  to  the  concen- 
trations of  industry  has  been  the  excessive  prices;  that  is, 
the  stockholders  of  the  great  corporations  rather  than  the 
public  have  gained  the  major  part  of  the  advantages  of  their 
exceptional  efl&ciency.  If  great  organizations  are  allowed  to  The  public 
exist  and  to  cooperate,  it  is  clear  that  they  cannot  remain  ^^g^^^g^g 
without  restraint  in  fixing  prices.     Some  way  must  be  found 

to  prevent  excessive  charges  and  thus  guard  the  interests  of 
the  public.  In  order  that  fair  prices  may  be  secured,  it  is 
necessary  that  certain  other  things  be  prohibited;  among 
which  are  the  following  :  — 

(a)    If  great  concentrations  of  industry  be  permitted  to 
exist,  there  must  be  some  method  of  guarding  the  capitali- 


230 


CONCENTRATION  AND  CONTROL 


Overcapi- 
talization. 


Promoters' 
charges. 


Speculative 
manage- 
ment. 


zation  of  the  mergers  and  consolidations  in  order  to  protect 
the  public  against  the  ill-advised  purchase  of  watered  stock, 
and  against  the  payment  of  dividends  upon  watered  stock. 
It  is  fully  appreciated  that  this  matter  of  overcapitalization 
is  one  of  extraordinary  difficulty  concerning  which  it  is  not 
easy  to  formulate  definite  rules.  This  will  be  appreciated 
if  the  report  of  the  Railroad  Securities  Commission  of  1911,  on 
public  utilities,  be  examined.  In  some  cases  it  is  fair  to  a 
certain  extent  to  capitalize  good  will,  trade  marks,  and  pat- 
ents. Also  in  passing  from  the  competitive  system  to  the 
cooperative  system,  it  may  be  necessary  to  take  into  an  or- 
ganization some  plants  which  cannot  be  utilized  but  which 
must  be  paid  for.  In  such  cases  there  is  loss  in  either  method, 
by  operating  under  the  competitive  system  or  by  capitalizing 
under  the  cooperative  method.  This  is  well  illustrated  by  the 
whisky  combination.  When  this  consolidation  was  formed, 
it  was  found  economical  not  to  utilize  a  considerable  number 
of  plants  taken  into  the  combination.  So  far  as  such  plants 
could  not  be  used  for  some  other  purpose  than  that  of  dis- 
tilling they  became  a  complete  loss.  Thus,  while  some  capi- 
talization of  unproductive  property  and  good  will  is  allow- 
able, this  should  be  on  a  conservative  basis.  Capitalization 
of  hoped  for  earning  power  may  not  be  legitimate. 

(6)  Excessive  costs  of  organization  and  manipulation  by 
promoters  should  not  be  allowed.  It  is  clear  that  while  fair 
charges  for  promotion,  including  underwriting,  are  permis- 
sible and  should  be  included  in  the  capitalization,  one  of  the 
great  evils  of  the  recent  era  of  consolidations  has  been  exces- 
sive charges  in  these  particulars. 

(c)  Speculative  management  should  be  guarded  against 
and  payment  of  unearned  dividends  prevented.  While  these 
evils  are  not  peculiar  to  the  great  corporations,  as  an  organi- 
zation increases  in  size  it  becomes  of  increasing  public  in- 
terest, and  therefore  should  be  considered  in  an  exceptional 
way  in  proportion  to  the  magnitude  of  the  enterprise. 

12.  Finally  the  scope  of  the  powers  of  the  United  States 
and  the  several  states  should  be  clearly  defined  in  the  control 
of  commerce.     Mr.  Bryan  said  at  the  White  House  in  1908 : 


REMEDIES  231 

"There  is  no  twilight  zone  between  the  nation  and  the  state,  The  twilight 
in  which  exploiting  interests  can  take  refuge  from  both."  ^  ^°°®" 
If  this  phrase  were  changed  from  "there  is"  to  "there  should 
be"  it  would  precisely  express  the  situation.  Nothing  is 
plainer  than  that  there  is  a  twilight  zone  between  the  nation 
and  the  states  where  the  great  corporations  have  taken  ref- 
uge from  both.  This  has  clearly  appeared  in  the  prosecu- 
tions carried  on  by  the  Attorney-General  of  the  United  States 
in  attempting  to  enforce  the  Sherman  act. 

Minimum  Specifications.  —  It  cannot  be  expected  that 
at  once  a  scheme  will  be  enacted  into  legislation  to 
meet  all  of  the  above  specifications.  It  may  be  doubt- 
ful, indeed,  if  it  be  advisable  to  present  a  complete 
plan  to  meet  them,  since  any  such  plan  would  be  sure 
to  be  profoundly  modified  in  all  but  its  essential  features 
before  the  time  was  reached  for  the  enactment  of  the  more 
remote  parts  of  it.  It  will  be  the  work  of  many  years  to  se- 
cure a  system  of  legislation,  state  and  national,  which  will 
meet  the  specifications  made  in  regard  to  which  there  seems  to 
be  a  consensus  of  opinion.  It  must  be  remembered  that  the 
temper  of  our  people  is  such  that  in  handling  any  complex  Conaerva- 
situation  by  legislation,  advance  is  made  step  by  step,  each  of^oi^^™^^"^ 
one  being  very  short.  This  is  very  well  illustrated  by  the  people, 
legislation  for  handling  public  utilities  to  be  subsequently 
spoken  of. 

It  is  therefore  essential,  if  possible,  that  we  select  the  fun- 
damental points  among  the  specifications  upon  which  a  con- 
sensus of  opinion  can  be  reached,  and  propose  a  program 
which  deals  definitely  only  with  those  points,  leaving  the 
other  specifications  to  be  handled  by  later  amendments. 

Of  the  specifications  given  it  appears  to  me  that  two  are 
fundamental  and  paramount  to  the  others. 

The  first  is  that  the  weak  and  the  strong  shall  alike  have 
full  opportunity  to  secure  justice  from  the  great  corporations. 
That  this  is  the  situation  at  the  present  time  no  one  would 
claim.  There  have  been  a  few  recoveries  of  damages  by 
important  companies  or  combinations  against  greater  com- 
1  Conference  of  the  Governors  of  the  United  States,  Washington,  1908,  p.  201. 


232 


CONCENTRATION  AND  CONTROL 


The  weak 
and  strong 
to  be  equal. 


Reasonable 
cooperation. 


binations  which  have  been  in  restraint  of  trade;  but  so  far 
as  the  general  public  is  concerned,  the  individual  who  has 
been  overcharged,  the  small  company  that  has  been  weakened 
or  destroyed  by  unfair  practices,  has  had  substantially  no 
redress.  The  law  may  have  been  such  that  if  the  individual 
or  the  small  company  had  unlimited  money,  and  the  courts 
proceeded  with  ten  times  the  expedition  that  they  now  do, 
an  approximation  to  justice  might  be  reached ;  but  these  are 
not  the  facts ;  they  never  wll  be  the  facts.  No  sane  man  can 
deny  that  the  existing  laws  or  any  other  possible  ones,  how- 
ever severe  they  might  be  made  against  the  great  concen- 
trations of  industry,  would  be  of  no  avail  to  the  workman  who 
is  overcharged  for  an  article  of  daily  consumption,  or  to  the 
small  producer.  If  we  are  to  retain  the  essentials  of  a  democ- 
racy, and  are  not  to  become  a  plutocracy,  some  plan  must 
be  devised  under  which  the  weak  as  well  as  the  strong  has 
redress  for  wrongs,  has  his  rights  respected.  If  the  most  ar- 
dent advocate  of  court  method  of  procedure  against  corpora- 
tions in  restraint  of  trade  through  amendments  of  existing 
laws  to  be  enforced  by  the  courts  believes  that  there  is  any 
possibility  of  redressing  the  wrongs  of  the  individual  and 
securing  the  rights  of  the  weak,  he  must  indeed  be  blind  to 
the  experience  of  the  past  fifty  years  of  development  and  be 
content  with  faith  without  works. 

Second  if  the  arguments  in  the  earlier  chapters  of  this  book 
are  approximately  sound,  we  must  now  accept  for  this  coun- 
try the  principle  of  cooperation  in  business.  Even  the  most 
ardent  defender  of  the  competitive  system  says  that  com- 
petition must  be  regulated ;  and  he  says  that  the  alternative 
is  between  regulated  competition  and  regulated  monopoly.^ 
The  writer  holds  that  there  is  no  such  alternative.  We 
should  not  accept  competition  as  the  controlling  principle 
on  one  side,  nor  monopoly  as  the  controlling  principle  on 
the  other  side.  We  should  accept  the  broad  principle  that 
reasonable  cooperation  should  be  allowed  in  business  as  it  is 
allowed  everywhere  else  in  our  social  structure. 


1  Brandeis  says :    "The  real  issue  is  regulate  competition  or  regulate  mo- 
nopoly."    Hearings,  Part  XVI,  p.  1162. 


REMEDIES  233 

We  have  seen  that  the  laws  against  great  concentration 
of  industry  have  been  without  avail  to  give  justice  to  the 
individual.  Similarly,  they  have  been  without  avail  in  pre- 
venting cooperation.  The  Sherman  law  and  some  of  the  state 
antitrust  laws  are  now  over  a  score  years  old.  At  the  time 
the  Sherman  law  was  enacted  it  was  supposed  that  the  courts 
would  be  competent  to  regulate  the  trusts  so  as  to  produce 
reasonable  rather  than  unreasonable  cooperation.  That  this 
would  not  be  the  case  Professor  Richard  T.  Ely  ^  clearly  Failure  of 
foresaw  a  dozen  years  ago.  He  says:  "If  there  is  any  ^°^*^- 
serious  student  of  our  economic  life  who  believes  that  any- 
thing substantial  has  been  gained  by  all  the  laws  passed 
against  trusts,  by  all  the  newspaper  editorials  which  have 
thus  far  been  penned,  by  all  the  sermons  which  have  been 
preached  against  them,  this  authority  has  yet  to  be  heard 
from.  Forms  and  names  have  been  changed  in  many  in- 
stances, but  the  dreaded  work  of  vast  aggregation  of  capital 
has  gone  on  practically  as  heretofore.  The  writer  does  not 
hesitate  to  affirm  it  as  his  opinion  that  efforts  along  lines 
which  have  been  followed  in  the  past  will  be  equally  fruitless 
in  the  future." 

As  has  been  clearly  developed  in  the  earlier  parts  of  this 
book,  the  views  which  Professor  Ely  held  at  that  time  have 
been  fully  justified.  The  laws  against  trusts  and  the  actions 
of  the  courts  in  their  enforcement  not  only  have  not  pre- 
vented the  existence  of  concentrations  and  the  enlargement 
of  the  trusts,  but  have  greatly  accelerated  their  develop- 
ment. 

Section  2 

COMMISSION  CONTROL   OF   PUBLIC   UTILITIES 

In  marked  contrast  with  the  situation  for  industry  during 
the  past  score  of  years,  there  has  been  sound  development 
in  control  of  one  great  line  of  concentration,  that  to  which 
the  term  public  utility  applies.  For  many  years  it  was  an 
accepted  faith  that  the  wrongs  to  individuals  perpetrated 

1  "Monopolies  and  Trusts,"  p.  243  (1899). 


234 


CONCENTRATION  AND  CONTROL 


Wrongs  un- 
redressed. 


"The 
public  be 
damned." 


by  the  great  public  utilities  corporations  were  to  be  redressed 
through  the  courts  of  law  and  that  competition  was  to  regu- 
late prices.  Under  this  faith,  millions  of  wrongs  went  unre- 
dressed; and  competition  led  to  unnecessary  duplication, 
great  loss  to  the  public,  destruction  to  the  weak,  and  finally, 
complete  dominance  of  the  great  public  utilities  and  especially 
the  railroads. 

The  well-recognized  maxim  upon  which  the  traffic  managers 
worked  under  the  old  regime  was  to  impose  all  the  traffic 
would  bear,  to  make  the  kind  of  service  rest  exclusively  upon 
the  returns.  In  short,  the  theory  originally  enunciated,  it  is 
alleged,  by  Commodore  Vanderbilt,  "The  public  be  damned," 
if  not  always  announced  openly,  was  the  real  feeling  which 
was  dominant  in  many  of  these  corporations.  They  were 
regarded  as  private  properties  to  be  run  for  those  who  owned 
the  stocks  and  bonds  and  not  for  the  advantage  of  the  public. 
All  the  laws  made  against  the  public  utilities  corporations 
and  their  enforcement  through  the  courts  by  action  for  dam- 
ages or  by  state's  attorneys  to  protect  the  public  rights  ac- 
complished practically  nothing.  But  the  fact  that  these 
organizations  were  public  utilities  in  law  and  therefore  did 
have  an  exceptional  relation  to  the  public  led  step  by  step  to 
another  method  of  control,  —  that  by  commission. 

Early  Commission.  —  As  early  as  1869,  the  state  of  Mas- 
sachusetts created  a  railroad  commission,  upon  which  was  im- 
posed the  duty  of  supervising  all  the  railroads  of  the  state, 
"whether  operated  by  steam,  horse,  or  other  motive  power." 
It  rested  upon  the  commission  to  ascertain  whether  the  rail- 
road company  complied  with  the  laws  of  the  state  and  to  con- 
sider the  complaints  of  citizens.  However,  the  commission 
had  only  the  right  of  suggestion.  It  might  inform  the  rail- 
road company  that  the  rates  charged  were  too  high ;  it  had 
no  authority  to  enforce  a  lower  rate. 

California,  in  1876,  established  a  railroad  commission  called 
Commissioners  of  Transportation,  the  powers  of  which  went 
far  beyond  those  of  the  Massachusetts  commission.  They 
included  the  establishment  of  stations,  the  prohibition  of 
discrimination,  and  the  power  of  examination  of  books. 


REMEDIES  235 

New  York  established  a  state  railroad  commission  in  1882. 
This  commission  had  power  to  investigate  accidents  result- 
ing in  injury  or  loss  of  life,  had  the  power  of  examining 
the  books,  had  imposed  upon  it  the  duty  of  calling  to  the 
attention  of  the  company  any  violation  of  the  law,  unfair 
practices,  excessive  rates,  inadequate  facilities,  etc.,  with 
recommendations.  If  these  recommendations  were  not  com- 
plied with  by  the  railroads,  the  commission  could  present  the 
facts  to  the  attorney-general,  who  was  to  secure  redress 
through  the  law. 

These  cases  illustrate  the  beginnings  of  commission  con- 
trol of  public  utilities  in  this  country.  In  this  brief  state- 
ment, it  is  not  possible  to  give  a  history  of  the  application  of 
commissions  to  public  utilities,  for  adequate  consideration 
of  the  commission  laws  would  involve  a  book  much  larger 
than  the  present  one.  In  general,  however,  it  may  be  said 
that  these  early  commissions  had  the  power  to  investigate 
and  make  suggestions  and  recommendations  to  the  railroads. 
If  these  recommendations  were  not  complied  with,  they  might 
be  presented  to  the  Attorney-General  for  prosecution  in  the  Power 
courts.     While  the  early  commissions  accomplished  some-  *i™ited  to 

''  ....  recommen- 

thing,  there  was  no  fundamental  change  m  the  situation,  dation. 
The  railroad  company  need  do  no  more  than  it  desired  to  do 
in  any  of  the  matters  recommended,  except  as  compelled 
by  action  of  a  court  of  law ;  and,  as  we  have  already  seen, 
this  method  of  procedure  has  been  a  failure  for  the  control  of 
concentration  of  industry  from  the  outset. 

From  these  beginnings,  the  commission  idea  of  control  of 
railroads  extended  to  many  other  states;  and  there  was  a 
gradual  expansion  of  their  power  until  finally  in  some  states 
rate-making  authority  was  given. 

The  first  state  to  pass  a  comprehensive  law  including  this 
power  was  Iowa.  In  1897  a  law  was  passed  in  that  state 
which  gave  to  a  commission  of  three  members  general  super- 
vision over  all  the  common  carriers  of  the  state.  The  in-  lowa  fixed 
hibitions  of  the  act  and  the  powers  of  the  commission  were  '■^*^^- 
substantially  the  same  as  those  contained  in  the  interstate 
commerce  act  of  1887  (see  pp.  238-239),  and  the  latter  law 


236    CONCENTRATION  AND  CONTROL 

undoubtedly  served  as  the  model  for  Iowa.  If  the  railroad 
companies  failed  to  obey  the  order  of  the  commission,  the  com- 
mission could  petition  the  district  court  to  enforce  the  order. 

The  Iowa  law  went  farther  than  the  interstate  commerce 
law  in  that  it  gave  the  commission  the  power  to  prescribe 
maximum  rates.  After  hearing  the  evidence  in  a  case  "the 
board  shall  prescribe  a  reasonable  maximum  rate.  Such  find- 
ing of  the  board  shall  in  a  judicial  proceeding  against  the  rail- 
road company  be  considered  as  prima  facie  evidence  of  the 
unreasonableness  of  a  rate  higher  than  that  prescribed  by  the 
board." 

The  Wisconsin  Commission.  —  It  was  in  Wisconsin,  when 
U.  S.  Senator  R.  M.  La  Follette  was  governor,  that  the  full 
solution  was  first  reached.  In  that  state,  in  1905,  W.  H. 
Hatton  was  chairman  of  the  committee  on  transportation  in 
the  state  senate.  He  laid  down  the  principle  "that  it  was 
as  much  the  duty  of  the  state  to  furnish  transportation 
facilities  as  it  ever  had  been  to  make  roads  or  build  bridges, 
and  that  if  the  function  was  delegated  to  any  one,  it  was  the 
duty  of  the  state  to  regulate  it  so  that  the  agent  should  be 
required  to  furnish  adequate  service,  reasonable  rates,  and 
practice  no  discrimination."  ^  Senator  Hatton  further  said 
regarding  the  proposed  bill  to  accomplish  the  above  :  "I  want 
this  procedure  so  simple  that  a  man  can  write  his  complaint 
on  the  back  of  a  postal  card,  and  if  it  is  a  just  one,  the  state 
will  take  it  up  for  him."  ^ 

We  have  here  enunciated  the  two  principles  now  generally 
recognized  as  applying  to  public  utilities,  regulation  so  as 
to  get  reasonable  rates  and  no  discrimination,  and  machinery 
so  simple  as  to  give  justice  to  all. 

The  act  passed  by  the  Wisconsin  legislation  gave  the  com- 
mission the  power  of  regulation  regarding  rates,  service,  and 
discrimination,  for  railroads  and  correlated  organizations, 
such  as  refrigerator  lines,  sleeping  car,  and  dispatch  com- 
panies. In  the  regulation  of  service  the  power  of  various 
state  commissions  had  been  gradually  extended,  and  the 
Wisconsin  bill  merely  carried  this  phase  of  the  matter  to  its 

1  "The  Wisconsin  Idea,"  Charles  McCarthy,  p.  39.  ^Ihid.,  41. 


REMEDIES  237 

logical  conclusion.  The  first  fundamental  new  point  of  the  Power  to 
law  was  that  while  the  onus  of  fixing  the  rates  rested  upon  ^*^J"^*  ^^*^- 
the  railroads,  the  commission  could  investigate  by  its  own 
initiative  or  by  complaint  any  rate  or  charge;  and  if  the 
same  was  found  to  be  unreasonable,  the  commission  could 
order  a  new  rate,  which  new  rate  must  be  substituted  for  the 
old  one.  Thus,  the  commission  was  given  a  possible  task. 
It  was  not  assigned  the  task  of  at  once  fixing  all  rates,  but 
the  task  of  readjusting  unreasonable  rates. 

The  second  fundamental  principle  of  the  law  was  that  the 
alterations  of  service  and  rates  were  accomplished  by  the 
commission  without  cost  to  the  complainant ;  and  thus  justice 
was  as  certainly  obtainable  by  the  man  who  had  imposed  The  power 
upon  him  an  excessive  charge  for  shipping  a  single  article  as  ^^}^!^  ^°™" 

^  .  °  1  X.      o  o  mission 

by  a  great  corporation.  There  was  no  escape  from  the  secures 
decision  of  the  commission  by  the  railroad  except  by  an  i^^^^^^- 
appeal  to  the  court ;  and  the  appeal  was  against  the  commis- 
sion, not  against  the  individual  who  made  the  complaint. 
As  a  matter  of  course  both  complainant  and  defendant  had 
full  opportunity  to  present  their  cases  in  public  hearing  be- 
fore the  commission  in  advance  of  action. 

The  third  important  principle  introduced  into  the  law 
was  that,  in  case  of  appeal,  the  burden  of  proof  that  the 
order  of  the  commission  was  unreasonable  was  upon  the  ap- 
pealing railroad.  Still  further,  if  evidence  was  introduced 
into  court  which  did  not  come  before  the  commission,  the  Newevi- 
court  was  obliged  to  stay  its  proceedings  and  remand  the  case  ^^°'^^- 
to  the  commission  for  a  rehearing,  thus  preventing  the  hold- 
ing back  of  evidence  by  the  corporations  to  discredit  the 
commission. 

All  the  provisions  of  the  bill  were  such  as  to  make  the 
powers  given  the  commission  lie  within  those  which  may  be 
delegated  by  a  legislature.  The  legislature  is  to  make  the 
law ;  is  to  lay  down  the  rules  which  control ;  the  commission  Regulation 
does  nothing  but  administer  the  law;  the  commission  can-  offaw'^^^ 
not  legislate,  but  it  can  make  regulations  under  the  rules  of 
law  formulated  by  the  legislature.  In  this  Wisconsin  bill 
we  have  fully  fledged  the  administrative  commission.     Its 


238    CONCENTRATION  AND  CONTROL 

regulations  are  sometimes  called  administrative  law  as  op- 
posed to  legislative  law. 

Following  from  the  powers  and  duties  of  the  commission, 
there  have  come  many  corollaries.  In  order  to  determine 
just  rates,  it  has  been  necessary  to  make  a  physical  valua- 
tion of  the  public  utilities.  In  the  valuation  of  the  prop- 
erties, both  physical  and  good  will,  it  has  been  necessary  to 
use  trained  experts,  both  in  engineering  and  in  economics. 

The  powers  of  the  railroad  commission  of  Wisconsin  were 
by  three  laws  in  1907  extended  to  apply  to  all  public  utilities 
within  the  state.  In  the  same  year  a  comprehensive  public 
utilities  law  along  somewhat  different  lines  was  passed  in  New 
York,  that  state  being  divided  into  two  districts,  one  includ- 
ing New  York  City  and  the  other  the  remainder  of  the  state. 

This  principle  of  control  of  public  utilities  through  com- 
missions, first  put  into  full  force  in  Wisconsin  and  New  York, 
has  been  accepted  by  a  number  of  other  states. 

The  Interstate  Commerce  Commission.  —  Just  as  the  states 
have  undertaken  the  control  of  public  utilities  for  intra- 
state business,  the  United  States,  by  the  interstate  com- 
merce act  of  1887,  has  instituted  a  system  of  control  for 
interstate  commerce.  This  act  creates  a  commission  of  five 
members,  later  increased  to  seven,  appointed  by  the  Pres- 
ident, who  hold  office  for  six  years.  The  original  act  applies 
to  railways  and  to  boats  engaged  in  the  transportation  of 
passengers  or  property  when  the  same  is  interstate.  Viola- 
tions of  the  act  are  made  a  misdemeanor  punishable  by  a 
heavy  fine  for  each  offense.  Unreasonable  charges,  unjust 
Charges  to  discrimination,  and  unjust  or  undue  preference  to  some 
abir^^°°"  particular  person  are  all  illegal.  Railroads  must  afford  all 
reasonable  and  proper  facilities  for  the  interchange  of  traffic, 
and  discrimination  in  the  rates  through  such  connection  is 
prohibited.  The  law  provides  for  the  posting  of  schedules 
and  requires  advances  of  the  same  to  be  preceded  by  ten 
days'  notice.  No  variation  from  published  rates  are  to  be 
permitted.  All  schedules  are  to  be  filled  with  the  commission. 
The  commission  has  power  to  inquire  into  the  manage- 


REMEDIES  239 

ment  of  the  business  of  common  carriers  and  to  obtain  full 
information  concerning  them.  Any  person  sustaining  dam- 
age may  make  complaint  to  the  commission  or  bring  a  suit 
in  his  own  behalf  in  the  District  Court  or  Circuit  Court  of 
the  United  States ;  but  he  cannot  do  both.  If  complaint  is 
made  to  the  commission,  this  organization  will  investigate ; 
and  if  the  complaint  is  well  founded  the  commission  will 
recommend  that  reparation  be  made. 

The  chief  defect  of  the  law  of  1887  was  that  the  commis- 
sion was  a  purely  advisory  body.  Further,  the  commission 
was  not  given  sufficient  appropriations  to  make  investiga- 
tions upon  which  to  determine  whether  charges  were  reason- 
able. Notwithstanding  these  limitations,  the  rebate  evil 
was  reduced,  and  a  great  number  of  cases  were  satisfactorily 
adjusted  without  going  into  court. 

In  1906  and  1910  the  interstate  commerce  law  was 
amended.  It  now  applies  to  all  common  carriers  engaged 
in  interstate  commerce  and  also  to  companies  engaged  in 
communication,  such  as  telephone,  telegraph,  and  cable.  In  All  public 
1906  was  given  the  power  to  fix  maximum  rates,  and  in  1910  ^^^/^)f^ 
to  suspend  increase  of  rates  pending  investigation.  The 
charges  both  in  transportation  and  communication  are  to  be 
just  and  reasonable;  unjust  and  unreasonable  charges  are 
declared  to  be  illegal.  A  charge  for  a  short  haul  shall  not 
exceed  the  charge  for  a  longer  distance  over  the  same  road, 
provided  that  the  Interstate  Commerce  Commission  may 
grant  relief  in  special  cases. 

Whenever  the  charges  are  found  unjust  or  unreasonable 
the  commission  is  authorized  and  empowered  to  determine 
and  prescribe  what  will  be  a  just  and  reasonable  rate.  In-  Power  to 
creases  in  rates  must  first  be  passed  upon  by  the  commission,  ^^eulate 
and  the  burden  of  proof  is  upon  the  carrier  to  show  the  rea- 
sonableness of  the  advanced  rate.  If  the  carrier  fails  to 
comply  with  an  order  of  the  commission,  the  complainant 
may  sue  the  carrier  in  the  Circuit  Court,  where  the  finding  of 
the  commission  shall  be  prima  facie  evidence  against  the 
carrier.  Also  the  Interstate  Commerce  Commission  may  ap- 
peal to  the  Commerce  Court  for  the  enforcement  of  its  order. 


240 


CONCENTRATION  AND  CONTROL 


Effective- 
ness of  law. 


Commerce 
Court. 


The  amendments  adopted  gave  the  commission  the  neces- 
sary authority  to  make  the  interstate  commerce  law  effec- 
tive ;  and  many  decisions  have  been  rendered  declaring  rates 
to  be  unreasonable,  and  reasonable  rates  have  been  fixed. 
In  many  cases  railways  have  been  found  guilty  of  discrimina- 
tion, orders  have  been  given  for  such  discriminations  to 
cease,  and  proper  damages  have  been  awarded.  In  numerous 
cases  where  the  joint  rates  exceeded  a  combination  of  the 
different  local  rates,  the  joint  rates  have  been  reduced  so  as 
not  to  exceed  the  combined  local  rates.  Special  rates  have 
been  declared  to  be  unlawful ;  and  unfair  regulations,  the 
effect  of  which  is  to  favor  some  shipper  (in  one  case  the 
Standard  Oil  Company),  have  been  abated. 

At  the  same  time  the  last  amendment  was  passed  giving 
the  Interstate  Commerce  Commission  power  to  regulate  rates, 
a  Commerce  Court  was  created.  This  court  has  exclusive 
jurisdiction  of  all  cases  arising  under  the  interstate  commerce 
act  "otherwise  than  by  adjudication  and  collection  of  a 
forfeiture  or  penalty  or  by  infliction  of  criminal  punish- 
ment, or  any  order  of  the  Interstate  Commerce  Commis- 
sion than  the  payment  of  money."  The  pendency  of  a  suit 
in  the  Commerce  Court  does  not  in  itself  stay  or  suspend  the 
operation  of  an  order  of  the  Interstate  Commerce  Commission ; 
but  the  Commerce  Court  may  at  its  discretion  suspend  such 
order  pending  final  hearing  or  determination  of  the  suit. 
There  may  be  appeal  from  the  Commerce  Court  to  the  Su- 
preme Court  of  the  United  States,  and  such  cases  are  to 
have  priority  except  over  criminal  cases.  Complainants  in- 
terested in  a  case  before  the  Commerce  Court  have  the  right 
to  appear  and  may  be  made  parties  thereto. 

Of  the  cases  of  appeal  from  the  Interstate  Commerce  Com- 
mission to  the  Commerce  Court,  there  have  been  many 
affirmations  and  also  many  in  which  the  orders  of  the  Inter- 
state Commerce  Commission  have  been  temporarily  sus- 
pended or  reversed. 

In  some  instances,  charges  which  the  commission  declared 
to  be  unreasonable  have  been  declared  to  be  reasonable  by 
the  court.     In  other  instances  where  charges  have  been  de- 


REMEDIES  241 

clared  to  be  unreasonable  by  the  commission,  the  court  has 
declared  that  the  order  was  based  upon  insufficient  evidence. 
In  one  case  a  through  railway  rate  had  been  lowered  until  it 
met  a  combined  rail  and  water  rate.  This  resulted  in  the 
railway  getting  the  major  part  of  the  business,  so  that  the 
water  competition  was  eliminated.  The  higher  rate  was 
then  resumed.  In  this  case  the  commission  condemned  the 
advance  in  the  rates  as  unjust  and  unreasonable;  but  the 
Commerce  Court  held  that  there  was  not  sufficient  evidence 
to  sustain  this  finding.  This  decision  is  of  great  consequence,  Decision 
since  the  method  that  the  railway  pursued  is  that  which  ^^}^'^^Y  *° 

•^  .  .      eliminate 

has  been  frequently  followed  to  drive  out  water  competi-  water  com- 
tion, — viz.,  lowering  rates  until  water  competition  is  de-  P^tit'o^i- 
stroyed,  then  raising  the  rates  and  taking  increased  profits. 

In  another  case  the  Commerce  Court  held  that  the  commis- 
sion exceeded  its  authority  when  it  laid  dowTi  a  hard  and  fast 
rule  to  apply  to  a  large  part  of  the  United  States  in  regard 
to  the  long  and  short  haul  clause.  Finally,  the  Com- 
merce Court  has  held  that  its  jurisdiction  extends  to  those 
cases  in  which  orders  are  for  the  payment  of  money  only.  In 
one  class  of  cases  the  court  has  gone  farther  than  the  conunis- 
sion.  It  was  held  by  the  commission  that  the  complainant 
could  not  recover  the  excess  charges  exacted  by  unreason- 
able rates  previous  to  his  complaint  to  the  commission; 
whereas  the  court  held  that  the  complainant  could  recover 
from  the  time  the  unreasonable  rate  was  inaugurated. 

Some  of  the  chief  differences  between  the  commission  and   Right  of 
the  court  are  as  follows  :  The  commission  holds  that  the  court   '^®"^^'^- 
has  no  right  to  review  the  orders  of  the  commission  concern- 
ing charges,  except  such  orders  as  are  confiscatory ;  whereas 
the  court  holds  that  it  may  review  the  action  of  the  commis- 
sion as  to  the  reasonableness  or  unreasonableness  of  charges. 

The  Commerce  Court  held  that  the  commission  has  no 
right  to  require  information  concerning  intrastate  business, 
since  the  same  is  not  interstate  commerce.     Probably  this  is  Commission 
the  decision  of  the  court  that  has  most  hampered  the  commis-     ^^p^^^  • 
sion  in  that  it  made  it  impossible  for  the  commission  to  ob- 
tain information  concerning  intrastate  business.     Without 


242    CONCENTRATION  AND  CONTROL 

this  knowledge  the  commission  found  it  very  difficult  to  de- 
termine the  reasonableness  or  unreasonableness  of  interstate 
rates,  since  the  reasonableness  of  a  charge  for  a  given  class  of 
business  is  dependent  as  one  factor  upon  the  entire  business 
done  by  the  road.  Fortunately  this  decision  of  the  Commerce 
Court  has  been  reversed  by  the  United  States  Supreme  Court. 
At  this  writing  the  other  important  differences  between  the 
commission  and  Commerce  Court  is  still  pending  in  the 
Supreme  Court. 

General  Statements.  —  From  the  early  public  utilities 
commission  of  the  sixties  almost  every  proposal  to  create 
a  commission  or  to  extend  its  powers  has  been  de- 
nounced as  wildly  radical,  as  socialistic.  It  has  been 
said  that  if  the  laws  proposed  were  passed,  we  might 
as  well  at  once  go  to  the  socialistic  doctrine  and  have 
business  carried  on  by  the  government.  The  officers  of  the 
Resistance  public  service  corporations  clearly  foresaw  that  the  commis- 
to  regula-  sions  meant  sooner  or  later  the  destruction  of  the  principles 
of  imposing  rates  that  the  traffic  would  bear  and  the  attitude, 
"the  public  be  damned."  Also  with  this  appreciation  by 
them  there  was  undoubtedly  an  honest  fear  on  the  part  of 
many  that  their  properties  would  be  unjustly  raided;  but 
the  old  situation  was  intolerable.  The  public  service  cor- 
porations and  the  people  were  at  war ;  and  under  conditions 
of  war  there  was  rancor  and  distrust  on  both  sides,  an  ob- 
stinate determination  on  the  part  of  the  railroad  companies 
to  resist  every  encroachment  in  the  matter  of  control  and 
determination  on  the  part  of  many  of  the  people  to  find  a 
weapon  by  which  they  might  smash  the  corporations. 

In  a  half  dozen  years  this  state  of  mind  both  on  the  part  of 
the  owners  of  the  public  utilities  and  upon  the  part  of  the 
people  has  largely  disappeared.  Where  before  we  had  war, 
we  now  have  peace. 

Those  who  have  studied  the  orders  of  the  commissions  to 
the  public  utility  corporations  know  that  commission  rule, 
upon  the  whole,  results  in  reasonable  requirements  regarding 
service  and  rates.     If  an  unreasonable  rate  be  imposed,  there 


REMEDIES  243 

is  appeal  to  the  courts ;  and  if  the  corporation  can  show  that  Protection 
the  rate  imposed  is  confiscatory  under  the  14th  amendment  of  °^  hts^^^^ 
the  United  States  Constitution,  the  order  of  the  commission 
will  be  reversed  by  the  courts.  To  bring  a  suit  in  court  im- 
poses no  especial  hardship  upon  the  railroads,  since  these  great 
corporations  have  the  money  to  carry  their  cases  to  the 
highest  courts  of  the  land.  In  consequence  of  the  adequate, 
indeed  unique,  protection  which  property  possesses  in  this 
country  under  the  14th  amendment,  as  compared  with  any 
other  country,  some  orders  of  the  commissions  have  been 
reversed  and  property  has  been  completely  protected. 

The  commissions,  as  a  matter  of  pride,  desire  to  avoid  hav- 
ing their  orders  found  unreasonable,  desire  not  to  have  them 
found  to  be  of  a  kind  which  confiscate  property ;  and  thus  the 
commissions  upon  the  whole  have  been  conservative  in  their 
actions  in  the  lowering  of  rates. 

If  there  be  any  advantage  upon  either  side  through  com- 
mission rule,  it  is  with  the  corporations.  Notwithstanding 
this,  the  people  know  that  the  weakest  one  of  them  is  no 
longer  subject  to  unjust  discrimination  which  would  ruin  his 
business ;  he  is  certain  that  his  stronger  competitors  are  not 
directly  receiving  rebates  and  drawbacks ;  he  is  certain  that 
his  rates  are  not  exorbitant ;  he  accepts  the  situation  even  if 
he  thinks  the  rates  are  somewhat  high. 

In  making  the  above  statement  it  is  not  meant  to  say  that 
everything  is  all  that  could  be  desired.  This  state  of  affairs 
never  will  be  reached  in  a  progressive,  industrial  democracy. 
So  long  as  the  conditions  are  dynamic  rather  than  static,  no 
one  will  ever  be  completely  satisfied.  Many  of  the  more 
important  railroad  men,  in  private,  make  complaint  of  some  Complete 
of  the  orders  of  the  commissions,  both  state  and  interstate,    s^'tisfaction 

'  '    unattain- 

because  of  what  they  regard  as  their  too  theoretical  character  able. 
due  to  lack  of  knowledge  of  practical  difficulties  involved  in  •« 
executing  the  orders.  There  are  complaints  as  to  divisions  of 
cost  between  freight  and  passenger  traffic;  there  are  com- 
plaints of  orders  regarding  stations,  frequency  of  service,  etc. 
Upon  the  other  hand  some  of  the  people  complain  that,  be- 
cause of  the  protection  of  property  under  the  14th  amendment, 


244    CONCENTRATION  AND  CONTROL 

the  commissions  have  been  too  conservative  and  that  the 
rates  have  not  been  sufficiently  reduced ;  that  adequate  ser- 
vice has  not  been  secured.  That  each  side  should  unduly 
stress  its  owti  point  of  view  and  not  see  with  perfect  fair- 
ness the  point  of  view  of  the  other  side  is  natural,  indeed 
inevitable.  But  neither  side  would  go  back  to  the  old  condi- 
tion of  affairs.  The  wiser  railroad  men  would  far  prefer  to 
be  under  commissions  than  to  be  under  blackmail  through 
holdup  bills  at  every  session  of  many  state  legislatures. 
The  pressure  of  these  holdup  bills  was  so  great  that  many  a 
railroad  man  in  high  position  and  of  unquestioned  business 
standing  has  felt  it  necessary  in  the  past  to  bribe  legislatures. 
No  longer  does  this  extremely  distasteful,  disgraceful,  and  un- 
lawful performance  generally  exist.  On  the  other  hand, 
while  the  people  may  not  be  completely  satisfied,  they  realize 
that  they  are  far  better  off  than  when  rebates  and  drawbacks 
existed,  when  there  was  discrimination  between  men  and 
discrimination  between  different  localities. 

Perfect  contentment  we  shall  never  have ;  but  the  results 
achieved  in  the  control  of  public  utilities  by  the  administrative 
commissions  are  so  great  that  we  may  be  sure  that  from  this 
time  on  the  steps  will  be  forward  rather  than  backward  in 
commission   control   of  public  utilities.      The  fundamental 
principle  of  regulation  of  the  public  utilities  by  commissions  is 
Movement     substantially  sound.    It  remains  only  to  extend  the  principle 
forward.         worked  out  to  the  remaining  states  of  the  country  and  develop 
details  necessary  for  the  perfection  of  the  method  of  control. 
So  satisfactory  upon  the  whole  is  the  situation  that,  as 
already  pointed  out,  the  people  accept  with  equanimity  the 
principle  of  cooperation  among  the  public  utilities.     Every- 
Cooperation  where  the  latter  cooperate  in  fixing  rates  so  as  to  prevent  de- 
accepted,       structive  competition.    No  officer  of  any  state  or  of  the  United 
«      States  thinks  of  bringing  suit  against  the  public  utility  cor- 
porations for  violation  of  the  antitrust  acts,  although  they  are 
as  flagrant  violators  of  these  laws  as  any  in  the  United  States. 
In  short,  the  administrative  commission  has  secured  for  the 
public  utilities  reasonable  justice  to  all  and  by  common  con- 
sent has  permitted  cooperation. 


REMEDIES  245 

Section  3 

PURE  FOOD  AND  DRUGS  LAWS 

At  the  same  time  that  one  class  of  commissions  has 
arisen  to  control  charges  and  service  of  public  utilities,  an- 
other class  of  administrative  body  has  arisen  to  control  the 
quality  of  conmiodities.  As  we  have  seen  (pp.  74-78),  the 
dogma  of  competition  is  that  it  is  to  control  quality  and 
price.  For  the  industries,  we  have  further  seen  that  in  con-  Failure  of 
trolling  quality  competition  has  been  an  unqualified  failure ;   ^p^P^^i- 

tlOD.  to  S&" 

indeed,  so  disastrous  was  the  failure  and  so  menacing  to  cure 
public  welfare,  especially  with  reference  to  health,  that  the  Q^^ity- 
great  majority  of  states  have  passed  pure  food  laws,  under 
which  it  is  necessary  for  the  label  to  tell  the  truth  concern- 
ing an  article.  These  laws  prevent  the  introduction  into 
food  of  preservatives  inimical  to  health  and  prevent  the 
adulteration  of  foods,  drinks,  and  drugs. 

The  states  and  possessions  having  pure  food  laws  include 
the  following :  Alabama,  1907 ;  Alaska,  1906 ;  Arizona, 
1906;  Arkansas,  1907;  California,  1907;  Colorado,  1907; 
Connecticut,  1907 ;  Delaware,  1907 ;  Florida,  1907 ;  Geor- 
gia, 1906 ;  Hawaii,  1903 ;  Idaho,  1905 ;  Illinois,  1907 ;  In- 
diana, 1907;  Iowa,  1906;  Kansas,  1907;  Kentucky,  1908; 
Louisiana,  1906 ;  Maine,  1907 ;  Maryland,  1910 ;  Massachu- 
setts, 1882;  Michigan,  1881;  Minnesota,  1905;  Mississippi, 
1910;  Missouri,  1907;  Montana,  1907;  Nebraska,  1907; 
Nevada,  1909;  New  Hampshire,  1907;  New  Jersey,  1907; 
Ohio,  1904;  Oklahoma,  1909;  Oregon,  1907;  Rhode  Island, 
1908;  Philippines,  1906;  New  Mexico,  1906;  New  York, 
1909 ;  North  Carolina,  1907 ;  North  Dakota,  1907 ;  Pennsyl- 
vania, 1907;  Porto  Rico,  1906;  South  Carolina,  1907; 
South  Dakota,  1907 ;  Tennessee,  1907 ;  Texas,  1907 ;  Utah, 
1903;  Vermont,  1907;  Virginia,  1908;  Washington,  1901 ; 
West  Virginia,  1907 ;  Wisconsin,  1903  ;  Wyoming,  1907. 

It  is  noticeable  that  with  two  exceptions  these  laws  were 
formulated  from  1903  to  1910.  The  salient  point  in  connec- 
tion with  the  present  discussion  is  that  for  each  state  having 


246 


CONCENTRATION  AND  CONTROL 


The  admin- 
istrative 
commission. 


United 
States  pure 
food  law. 


Re^Tulation 
under  rule 
of  law. 


pure  food  laws,  special  administrative  officers  are  assigned  the 
duty  of  their  enforcement.  These  officers  may  constitute  a 
commission  or  a  board.  The  duty  may  rest  upon  a  single 
designated  individual,  in  a  number  of  instances  called  com- 
missioner. 

The  same  principles  which  were  first  applied  within  the 
states  in  the  control  of  quality  through  commission  was  recog- 
nized by  the  United  States  when  the  pure  food  law  was  passed 
for  interstate  commerce  in  1906. 

This  law  makes  it  a  misdemeanor  to  manufacture  adulter- 
ated foods  or  drugs  or  to  misbrand  same  or  to  sell  adulterated 
or  misbranded  foods  or  drugs ;  it  provides  for  examination  of 
products  upon  the  market  by  the  Bureau  of  Chemistry;  it 
provides  that  the  secretaries  of  agriculture,  of  the  treasury, 
and  of  commerce  and  labor  shall  issue  rules  and  regulations 
for  the  enforcement  of  the  act ;  the  violation  of  these  rules 
is  to  be  punished  by  fine  or  imprsonment  or  both.  Mis- 
branded  or  adulterated  foods  or  drugs  are  to  be  condemned. 

A  meat  inspection  amendment  was  added  to  the  pure 
food  laws  providing  for  the  inspection  of  all  slaughtered  car- 
casses. This  amendment  applies  both  to  commerce  between 
the  states  and  between  the  states  and  foreign  countries.  Be- 
fore passing  any  carcass  it  is  to  be  found  in  a  healthy  and 
sound  condition.  This  work  is  to  be  done  by  the  Depart- 
ment of  Agriculture. 

In  general,  the  pure  food  laws,  both  state  and  national,  lay 
down  the  general  principles  to  be  obeyed;  the  commissions 
or  other  administrative  officers  formulate  definite  detailed 
regulations  under  the  general  rules  of  law.  These  pure  food 
officials  have  created  laboratories  for  analyses  of  foods  and 
drugs;  they  send  their  investigators  to  the  various  parts 
of  the  country  to  ascertain  whether  the  laws  are  being  com- 
plied with.  They  issue  necessary  orders  in  connection  wath 
their  duties.  In  short,  they  are  administrative  bodies  hav- 
ing imposed  upon  them  the  duty  of  seeing  that  the  laws  for 
the  protection  of  the  public  regarding  quality  are  complied 
with.  Finally,  the  pure  food  officials  may  prosecute  in  the 
courts  for  failure  to  comply  with  the  regulations  issued. 


REMEDIES  247 

Under  the  theory  that  competition  would  regulate,  the 
public  would  have  remained  without  protection.     Had  it  not 
been  for  the  creation  of  the  administrative  officials  to  enforce 
the  quality  laws,  the  only  redress  of  the  injured  individual 
would  have  been  to  take  his  case  to  the  courts.     In  the  ma- 
jority of  cases  the  damage  was  small  and  an  injured  individual  Redress 
could  not  afford  to  do  this.     Just  as  with  the  public  utilities,   ri?°"l?v.'. 
redress  should  be  obtainable  without  expense  to  the  individual,   individual. 
The  situation  was  saved  by  the  recognition  of  legislatures 
and  Congress  at  the  time  they  made  the  pure  food  laws,  that 
they  must  create  administrative  officers  to  enforce  them. 

Just  as  there  was  resistance  by  the  railroads  and  other  public 
utility  corporations  to  commission  form  of  control  and  the 
principle  was  established  only  as  a  result  of  many  years  of 
severe  contest,  so  there  was  prolonged  and  determined.  Resistance 
indeed  fierce,  opposition  by  many  of  the  manufacturers  i°^^^ 
to  the  pure  food  laws.  There  was  great  commercial  gain  by 
exploiting  the  public  through  deceit,  and  this  advantage  they 
were  determined  not  to  lose.  Resistance  was  so  powerful 
that  it  was  only  when  there  was  an  aroused  public  sentiment 
in  favor  of  the  passage  of  the  laws  that  the  states  and  finally 
Congress  enacted  the  same. 

A  case  of  most  determined  resistance  was  that  of  meat. 
False  brands  were  used ;  the  conditions  in  some  of  the  abat- 
toirs were  unsanitary ;  diseased  meat  was  sold.  The  packers 
opposed  bitterly  the  necessary  inspection  to  secure  wholesome 
meat.  The  public  was  of  no  consequence  as  compared  with  The  public 
increased  gain.  Meat  inspection  was  so  strongly  resisted  f^^^ain 
that  the  law  as  finally  enacted  by  Congress  was  only  gotten 
through  by  the  government  taking  upon  itself  the  cost  of  the 
inspection. 

Even  to  the  present  time  there  is  determined  resistance  by 
some  manufacturers  to  the  execution  of  the  laws,  and  pressure 
is  brought  to  bear  upon  the  Department  of  Agriculture  to  sus- 
pend or  modif}'  its  rulings.  Other  wiser  and  more  public- 
spirited  manufacturers  are  cheerfully  conforming,  indeed 
assisting,  in  the  enforcement  of  the  pure  food  laws.  In  general 
the  revolution  has  taken  place  and  a  new  situation  exists.   This 


248 


CONCENTRATION  AND  CONTROL 


being  so,  it  seems  almost  unthinkable  that  the  nation  was 
allowed  to  be  exploited  for  so  long  a  time  by  the  unscrupulous 
manufacturers  who  wished  to  gain  through  deceit  at  the 
expense  of  the  public. 


Control  by 
trade  com- 
missioDS. 


Courts  not 
adapted  to 
control. 


Section  4 
THE   CREATION   OF   TRADE   COMMISSIONS 

Following  the  inductive  method,  and  taking  steps  in  ad- 
vance with  the  greatest  care  only  as  justified  by  the  expe- 
rience of  the  past,  is  not  the  conclusion  inevitable  from  the 
evidence  presented  in  the  previous  section  that  the  ma- 
chinery which  has  been  applied  so  successfully  to  the  control 
of  public  service  corporations  and  to  the  control  of  quality  so 
far  as  essential  articles  are  concerned,  should  be  applied  to  the 
great  industrial  corporations  ?  The  failure  of  the  competitive 
system  for  the  adequate  control  of  the  price  and  service  for  pub- 
lic utilities  and  quality  for  manufactures  cannot  be  gainsaid. 

The  thesis  is  presented  that  commissions  should  be  created 
to  control  industrial  corporations  affected  with  a  public 
interest  just  as  they  now  control  the  public  service  corpora- 
tions, as  they  control  quality  in  industry. 

That  some  method  of  administrative  control  for  the  com- 
binations must  be  created  is  showTi  by  the  case  of  the 
American  Tobacco  Company,  in  which  the  inferior  court  in 
cooperation  with  the  Attorney-General  undertook  extraordi- 
nary administrative  work  of  a  new  kind  and  to  which  the  court 
is  not  adapted.  (See  pp.  183-187.)  Regarding  the  dis- 
solution of  the  American  Tobacco  Company,  the  Attorney- 
General  said  the  problems  involved  were  economic  rather  than 
legal.  He  adds  :  "  But  neither  the  courts  nor  the  department 
of  justice  is  properly  equipped  to  work  out  such  problems 
save  in  exceptional  cases."  He  points  out  that  in  the  par- 
ticular instance  in  which  a  complex  economic  duty  was  im- 
posed upon  the  court,  it  so  happened  that  the  Bureau  of 
Corporations  had  made  an  elaborate  investigation  and  had 
the  facts  in  its  possession  necessary  to  base  a  plan  for  carrying 
out  the  decree.     The  bureau  was  called  upon  by  the  Attor- 


REMEDIES  249 

ney-General  for  the  extra-official  duty  of  advising  him  regard- 
ing the  manner  of  disintegration. 

The  Attorney-General  suggests  that  the  duty  of  the  bureau 
might  be  enlarged  so  as  to  include  investigations  and  reports 
upon  plans  for  disintegration  of  monopolistic  combinations, 
which  either  voluntarily  or  by  pursuance  of  decree  are  ad- 
judged to  be  in  violation  of  the  antitrust  act.  He  further 
suggests  that  the  bureau  might  be  availed  of  as  the  nucleus  for 
"an  administrative  board  under  whose  supervision  consoli- 
dations or  mergers  for  lawful  purposes  might  be  formed." 
This  proposal  is  a  first  step  in  the  direction  of  that  which  Administra- 
is  herein  made  that  administrative  commissions  should  be   *'y^5°'^" 

mission. 

created  upon  which  should  rest  the  duty  of  supervision  of 
combinations  which  exist  in  restraint  of  trade.  To  combine 
the  duties  of  the  commissions  with  the  courts,  as  suggested 
by  the  Attorney-General,  would  be  most  unfortunate ;  since 
of  necessity  the  courts  must  remain  the  body  to  which  ap- 
peals may  be  made  from  the  commissions.  The  duties  of 
administrative  commissions  and  the  courts  should  be  kept 
wholly  distinct. 

Section  5 

PROPOSED  MINIMUM  AMENDMENTS  TO  ANTITRUST  LAWS 

To  accomplish  control  of  combinations  through  adminis- 
trative commissions,  it  will  be  necessary  to  make  the  follow- 
ing amendments  to  the  antitrust  laws  :  — 

(1)  Business  of  a  Public  Interest.  —  The  law  should  declare 
that  businesses  which  restrain  trade  to  such  a  degree  as 
to  control  the  market  by  that  fact  becomes  of  public  in- 
terest.    No  one  can  doubt  that  the  greater  corporations 
are  just  as  much  affected  by  public  interest  as  are  the 
railroads.     The  United  States  Steel  Corporation,  Standard  Great  cor- 
Oil   Companies,   and   the   American   Sugar  Refining  Com-  pui^^^p^'utili- 
pany,  producing  commodities,  some  of  which  are  required  ties  in  fact. 
by  the  larger  portion  of  the  population,  have  relations  to 
the  public  as  a  whole.     This  principle  has  already  been  rec- 
ognized by  some  common  law  decisions ;  and,  in  consequence, 
one  class  of  business  which  earlier  was  regarded  as  purely 


250 


CONCENTRATION  AND  CONTROL 


Great  busi- 
ness affects 
community 
at  large. 


Big  busi- 
ness of 
public 
interest. 


private  has  become  a  public  utility.  Elevating  grain,  as  a 
result  of  a  long  contest,  was  declared  to  be  affected  with  a 
public  interest,  and  therefore  to  be  under  the  same  obli- 
gations as  other  public  utilities.^  In  the  case  of  Munn  v. 
Illinois,  Chief  Justice  White,  speaking  for  the  court,  said : 
"Property  becomes  clothed  with  a  public  interest  when  used 
in  a  manner  to  make  it  of  public  consequence,  and  affect  the 
community  at  large."  Judge  Vinje,  of  Wisconsin,  in  dis- 
cussing this  matter,  summarizes  the  conclusions  of  the  United 
States  Supreme  Court  in  the  following  words  :  "We  find  that 
private  property  or  business  becomes  affected  with  a  public 
interest  when  used  or  carried  on  in  a  manner  to  make  it  of 
public  consequence,  and  affect  the  community  at  large,  and 
when  thus  affected  such  property  or  business  becomes  subject 
to  legislative  control  in  all  respects  necessary  to  protect  the 
public  against  dangers,  injustice,  and  oppression."  ^ 

Therefore  we  have  but  to  apply  the  principle  of  law  already 
recognized  by  the  United  States  Supreme  Court  to  busi- 
nesses which  exist  in  restraint  of  trade.  Indeed,  in  the  case 
of  Oklahoma,  this  principle  has  already  been  embodied  into 
statute  law  in  most  comprehensive  terms.  In  that  state,  when- 
ever any  business  by  reason  of  its  extent  or  by  virtue  of 
monopoly  is  such  as  to  make  it  of  public  consequence  or  to 
affect  the  conmiunity  at  large  in  reference  to  supply  and  de- 
mand or  price,  such  business  is  declared  to  be  a  public  busi- 
ness and  to  be  under  control  of  the  state  through  the  Corpora- 
tion Commission  or  by  an  action  in  any  district  court  of  the 
state  (see  p.  195).  Thus  existing  common  law  and  statute 
law  for  one  state  are  in  accord  with  the  principle  here  advo- 
cated. It  remains  only  to  embody  the  principles  enunciated 
into  statute  law  for  the  several  states  and  for  the  nation. 

(2)  Cooperation  Reasonable.  —  The  law  should  define  rea- 
sonable restraint  of  trade  in  such  a  manner  as  to  permit  coop- 
eration. Regarding  the  extent  to  which  cooperation  should 
be  permitted,  there  will  doubtless  be  difference  of  opinion; 


1  Munn  V.  Illinois,  94  U.  S.  113 ;   Budd  v.  N.  Y.,  143  U.  S.  517. 

2  "The  Legal  Aspects  of  Industrial  Consolidations,"  Reports  of  Wisconsin 
State  Bar  Association,  Vol.  VI,  pp.  159-181. 


REMEDIES  251 

but,  as  already  indicated,  the  most  logical  place  at  which  to 

stop  is  the  point  fixed  by  the  common  law  principle,  and  declare 

restraint  of  trade  unreasonable  that  gets  to  monopoly.     To 

make  the  law  exact  it  should  declare  any  corporation  which, 

with  its  subsidiary  companies,  controls  a  definite  percentage   Reasonable 

of  the  business  a  monopoly  (see  p.  227).     This  is  in  ac-  ^°2not'°° 

cordance  with  the  proposal  recently  made  by  Mr.  W.  J.   permit 

Bryan,  who  mentions  50  per  cent  in  this  connection.     The  monopoly, 

difference  between  the  view  of  Mr.  Bryan  and  the  position 

taken  here  is  that  he  apparently  regards  this  regulation  alone 

as  sufficient  to  insure  competition,  and  he  believes  in  the 

adequacy  of  the  control  of  business  by  competition.     If  the 

meaning  of  the  court  in  the  decisions  regarding  Standard  Oil 

and  Tobacco  are  that  undue  restraint  of  trade  means  restraint 

of  trade  which  extends  to  monopoly  (see  pp.  181-187),  then 

the  only  additional  point  embodied  in  the  above  proposal 

beyond  existing  law  is  that  monopoly  be  definitely  defined. 

However,  amendments  to  the  law  must  extend  beyond  the 
proportion  of  business  if  cooperation  be  permitted  in  prices, 
outputs,  etc. ;  for,  as  shown  by  the  decisions  of  the  federal  and 
state  courts,  co5peration,  except  to  a  very  limited  degree  as 
to  time  and  space,  is  under  the  ban  of  the  law  as  it  now  exists. 

In  this  connection  it  should  be  mentioned  that  it  has  been 
proposed  as  a  solution  of  the  problem  of  combination  that  the 
amount  of  business  which  one  company  may  control  shall  be  Futility  of 
reduced  to  a  relatively  small  fraction.     Some  have  said  that  p^aJIJfng^o 
no  one  corporation  should  be  allowed  to  produce  more  than  ten  small  frac- 
per  cent  of  a  product.     Others  would  hmit  the  capitalization  buJ^ggs. 
of  a  business  ;  and  this  is  another  way  to  accomplish  the 
same  purpose.^    Even  if  the  limitation  were  severe  regarding 
portion  or  capitalization,  it  would  still  be  possible  for  the 
corporations  to  cooperate,  secretly  or  openly,  and  thus  act 
substantially  as  a  unit.    Indeed,  at  the  present  time  we  know 
that  there  are  many  more  than  ten  companies  engaged  in  the 
same  business  cooperating  in  various  ways  in  its  control. 
Therefore  the  limitation  of  amount  of  business  alone  or  of 
capitalization  is  wholly  futile.    If  cooperation  be  permitted, 

^  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XX,  p.  1593. 


252    CONCENTRATION  AND  CONTROL 

e 

and  that  it  should  be  seems  to  me  to  have  been  established, 
the  cooperating  units  must  be  under  the  supervision  of  some 
authority  in  order  that  the  public  may  secure  fair  treatment. 

(3)  Competition  to  Remain  Free.  —  The  law  should  declare 
any  restraint  of  trade  unreasonable  which  does  not  permit 
free  competition.  While  reasonable  cooperation  should  be 
possible,  no  cooperation  should  be  permitted  which  in  any 
way  prohibits  another  person  or  corporation  from  freely 
entering  a  business.  Similarly  cooperation  of  labor  should 
be  under  the  same  supervisory  authority  as  cooperating 
capital.^ 

(4)  Unfair  Practices  should  be  Prohibited.  — In  the  enumer- 
ation of  unfair  practices  to  be  prohibited,  there  doubtless 
would  be  difference  of  opinion.  One  enumeration  is  given, 
pp.  225-226. 

General  Statements.  —  But  how  are  these  proposed  rules 
of  law,  state  and  national,  to  be  enforced  ?  Clearly,  if  the 
argument  to  this  point  be  sustained,  —  by  the  creation  of 
trade  commissions,  both  national  and  state,  an  interstate 
trade  commission  to  control  interstate  industrial  commerce 
and  state  commissions  to  control  intrastate  commerce.  Court 
procedure  would  be  as  futile  to  secure  the  enforcement  of 
the  above  rules  of  law  as  it  has  been  with  the  existing  laws ; 
but  commissions  granted  the  broad  powers  to  enforce  these 
rules  of  law,  being  administrative  bodies,  able  to  take  action 
without  complaint,  and  acting  on  complaint  without  expense 
to  the  complainant,  may  be  reasonably  expected  success- 
fully to  enforce  the  proposed  laws. 

It  is  not  necessary  again  to  give  in  detail  the  powers  which 
these  trade  commissions  should  have,  since  in  general  they 
should  be  the  same  for  the  industries  as  those  already  exist- 
ing for  pubHc  utilities.     (See  pp.  233-244.) 

These  powers  should  be  ample  to  enforce  all  the  above  pro- 
visions. Penalties  should  be  provided  for  violation  of  the  prin- 
ciples enunciated.  The  findings  of  a  commission  should  be 
accepted  as  prima  facie  evidence  of  their  correctness  and 

*  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XIX,  S.  P.  Bush, 
pp.  1642-1644. 


REMEDIES  253 

should  go  into  effect  at  once.  In  case  of  appeal  to  the  courts 
no  new  facts  should  be  introduced,  provided  same  could  have 
been  presented  to  the  commission.  If  material  facts  are 
brought  forth,  which  for  any  reason  could  not  have  been 
presented  to  the  commission  the  case  should  be  remanded  to 
the  commission  for  a  rehearing.  In  this  way  it  will  be  pos- 
sible to  prevent  withholding  evidence  when  a  case  is  before 
the  commission  in  order  to  get  the  same  into  the  court. 

There  is  no  question  that  the  creation  of  trade  commis- 
sions to  administer  the  general  principles  enacted  by 
Congress  and  state  legislatures  would  be  legal  and  constitu- 
tional. It  is  to  be  noted  that  the  principles  of  law  sug- 
gested are  stated  in  broad  and  simple  terms,  the  idea  being 
to  leave  the  formulation  of  detailed  regulations  to  the  com- 
missions. Thus  the  law  should  forbid  unfair  practices,  but 
the  specific  unfair  practices  should  not  be  enumerated; 
this  would  leave  it  to  the  commission  to  stipulate  those 
practices  which  are  unfair.  By  this  procedure  the  list  of 
unfair  practices  and  their  definitions  could  be  modified 
from  time  to  time  as  the  exigencies  demand ;  whereas  if  the 
unfair  practices  were  enumerated  in  detail  in  the  statutes, 
there  would  be  sure  to  arise  situations  which  are  not  ade- 
quately covered. 

Similarly,  regarding  cooperation,  the  law  should  merely 
prescribe  that  reasonable  cooperation  is  allowable,  and 
the  commission  should  work  out  details  as  to  what  is  per- 
missible under  the  rule. 

Again,  under  the  rule  of  law  laid  down  by  the  courts 
prohibiting  monopoly,  the  matter  of  deciding  whether  a 
given  corporation  falls  under  that  rule  should  rest  with,  the 
commission.  Not  only  so,  but  if  a  corporation  be  found  to 
be  a  monopoly  and  therefore  to  be  unreasonably  in  restraint 
of  trade,  the  commission  should  give  the  orders  as  to  the 
modifications  of  the  business  which  are  necessary  so  that 
the  corporation  shall  cease  to  be  a  monopoly.  Such  orders 
might  go  to  the  extent  of  disintegration  of  the  existing  or- 
ganization, if  the  monopoly  be  such  that  the  public  interests 
cannot  be  adequately  protected  without  such  action. 


254    CONCENTRATION  AND  CONTROL 

The  above  provisions  present  an  irreducible  minimum 
to  which  the  antitrust  laws,  state  and  national,  must  be 
amended  in  order  to  secure  freedom  of  competition,  free- 
dom of  cooperation,  destruction  of  monopoly,  and  justice 
to  all.  If  such  a  program  be  adopted,  the  first  conserva- 
tive fundamental  step  will  have  been  taken  to  stop  the 
present  perfectly  futile  attempts  to  regulate  concentration 
of  wealth  by  destructive  litigation,  adequately  to  protect 
any  corporation  entering  a  business,  and  at  the  same  time, 
to  give  protection  to  the  individual  and  to  the  public. 

It  should  be  noted  that  the  plan  to  this  point  permits 
cooperation  to  no  greater  extent  than  is  allowed  in  England 
and  Germany.  Indeed,  cooperation  in  Germany,  as  is 
shown  by  the  steel  combination,  is  allowed  to  go  to  the  ex- 
tent of  monopoly,  and  in  this  has  the  protection  of  the 
courts ;  although  if  the  prices  were  made  so  excessive  as  to 
excite  general  complaint,  it  would  be  possible  for  the  courts 
to  order  a  modification  of  the  combination  as  being  con- 
trary to  public  policy.  No  disastrous  consequences  have 
come  in  those  countries  because  of  the  ability  of  their  busi- 
ness men  and  manufacturers  to  cooperate.  Indeed,  there 
is  general  agreement  in  these  nations  that  the  gains  from 
cooperation  are  far  greater  than  the  disadvantages  of  the 
unrestrained  competitive  system. 

The  proposal  made  does  not  permit  cooperation  to  go  to 
the  extent  of  monopoly,  as  is  allowed  in  Germany.  Further- 
more the  cooperation  which  is  allowed  to  exist  in  restraint 
of  trade  is  under  the  supervision  and  regulation  of  an  ad- 
ministrative commission,  and  therefore  the  proposal  made 
is  a  much  more  conservative  one  regarding  recognition  of 
concentration  of  .industry  than  exists  in  England  and  Ger- 
many. 

Section  6 

FURTHER  EXTENSION  OF  POWER  OF  COMMISSIONS 

While  the  above  is  a  minimum  program,  adequate  grounds 
can  be  adduced  for  further  extending  the  authority  of  the 
commissions.     If  this  be  done,  it  will  be  necessary  to  enact 


REMEDIES  255 

additional  principles  into  law,  which  have  been  mentioned 
in  the  specifications,  given  pp.  225-231,  as  desirable.  The 
additional  points  will  be  enumerated  in  the  order  in  which 
they  are  likely  to  be  acceptable  to  the  public,  not  in  the 
order  of  their  importance. 

(1)  Publicity  Required.  —  All  corporations  which  exist  in 
restraint  of  trade  should  be  subject  to  full  publicity.  For 
any  one  of  them  the  public  should  know  the  amount  of  out- 
standing stocks  and  bonds  of  each  class ;  it  should  know  the 
physical  valuation  of  the  property;  it  should  have  full  in- 
formation concerning  the  conduct  of  the  business,  including 
the  amount  of  the  profits  which  goes  for  improvements, 
depreciation,  sinking  fund,  and  dividends.  In  short,  for 
each  corporation  allowed  to  cooperate  with  others,  the 
public  should  have  full  knowledge  of  all  of  the  facts  neces- 
sary to  pass  a  judgment  upon  the  nature,  extent,  and  effects 
of  its  business. 

If  this  principle  be  agreed  to,  the  requisite  amendment 
to  the  antitrust  laws  should  include  another  clause  stating 
in  broad  terms  that  the  commission  has  full  power  of  in- 
vestigations, including  access  to  the  books  of  the  company, 
with  authority  to  make  public  any  facts  concerning  the 
business  which  are  regarded  by  the  commission  as  having  a 
public  interest. 

(2)  Regulation  of  Prices.  —  While  the  above  pro\'isions 
will  make  a  great  advance  over  the  present  situation,  it  is 
by  no  means  certain  that  they  are  sufficient  to  protect  the 
public  in  the  matter  of  fair  prices.  Turning  again  to  the 
commissions  regulating  public  utilities :  they  were  first 
given  various  powers  regarding  service,  publicity,  etc. ;  but 
the  public  was  never  adequately  protected  until  they  had 
authority  to  regulate  prices,  not  the  responsibility  of  fixing 
prices,  but  the  authority  to  order  modification  of  prices 
upon  complaint  or  by  their  o^m  initiative.  I  am  aware 
that  at  this  point  there  will  be  great  difference  of  opinion ; 
therefore  I  have  carefully  refrained  from  including  it  as  an 
essential  part  of  the  proposed  remedial  plan.  But  it  is  in- 
evitable that  sooner  or  later  the  logic  of  events  will  demand 


256 


CONCENTRATION  AND  CONTROL 


Reasonable 
prices  must 
be  main- 
tained. 


Fixing  of 
price  in 
early  times. 


that  the  rule  of  law  be  made  that  all  cooperating  corpora- 
tions which  control  the  market  shall  charge  reasonable  prices. 
Under  this  simple  rule  of  law  the  commission  will  be  directed 
to  see  that  such  reasonable  prices  be  maintained.  If  this 
principle  can  be  agreed  to,  the  situation  is  adequately  cov- 
ered ;  for  if  an  unreasonable  price  be  charged,  the  commis- 
sion will  have  authority  to  fix  maximum  and  minimum  prices 
as  is  required  to  make  the  price  reasonable. 

In  justification  of  this  principle  it  may  be  said  all  that  it 
is  necessary  to  do  is  to  apply  the  practice  of  the  past  con- 
cerning monopoly  prices  to  the  present  situation  and  to 
place  the  enforcement  of  this  rule  of  law  with  the  commis- 
sion rather  than  the  court.  In  early  historical  times,  indeed 
until  the  nineteenth  century,  transportation  was  so  poorly 
developed,  that  it  was  possible  to  have  monopoly  in  a  rela- 
tively small  area.  Even  in  a  township  or  county,  the  diffi- 
culties in  transportation  were  sometimes  such  that  it  was  not 
easy  to  carry  needed  articles  from  one  place  to  another,  and 
an  individual,  or  two  or  three  individuals,  might  have 
monopoly  for  some  product  essential  to  the  community. 
Under  these  circumstances,  it  was  wholly  natural  that  the 
control  of  monopoly  should  have  been  a  function  of  the 
state  —  it  was  so  under  Roman  law  and  under  the  common 
law  of  England.  Control  went  so  far  as  to  regulate  prices. 
This  was  very  common  in  Rome.  In  England,  prices 
were  fixed  by  law  at  different  times  for  many  commodities ; 
among  these  were  books,  beer  barrels,  coal,  wheat,  rye, 
bread,  and  labor.  In  Massachusetts  the  revised  laws  of 
1649  limited  the  prices  of  wages,  freight,  ferryage,  mill  tolls, 
wharfage.  In  both  Massachusetts  and  New  York  the  scale  of 
wages  was  fixed  for  farm  laborers,  mechanics,  and  teamsters. 
Many  other  illustrations  of  fixing  prices  could  be  given. 

These  laws  show  with  perfect  clearness  that  the  public 
has  a  right  to  a  fair  price;  that  in  this  matter  as  in  others 
"the  welfare  of  the  people  is  a  supreme  law."  Whenever 
it  becomes  advisable  for  the  welfare  of  the  people  that  the 
state  authority  be  invoked  to  regulate  prices,  this  may  be 
done.     The  question  of  so  doing  is  merely  one  of  expediency. 


REMEDIES  257 

The  right  of  state  regulation  of  prices  is  beyond  question.^ 
It  has  merely  been  suspended  for  a  time  because  inexpedient 
to  exercise  it. 

With    the    modern    development    of    transportation,    it 
became  more   difficult  to  maintain  monopoly;    the   com- 
petitive  factor   became  more   important;    and  it  was  less 
necessary  for  prices  to  be  controlled  by  regulation.     By  the 
beginning   of   the   nineteenth   century,    with   minor   excep- 
tions, this  country  had  gone  over  to  the  theory  of  the  regu- 
lation of  prices  by  competition.     As  we  have  seen,   during 
the  nineteenth  century  we  had  a  period  in  which  the  system   Regulation 
of  letting  everybody  alone,  of  freedom  of  competition,  was   °Qj^"g!^  ^^ 
our  faith.     If  we  could  only  get  free  competition,  we  be-  tion. 
lieved,  we  should  have  the  remedy  for  our  ills,  so  far  as 
prices  were  concerned. 

But  as  we  have  seen  with  the  great  development  of 
transportation  and  concurrent  concentration  of  industry 
during  the  latter  half  of  the  nineteenth  century  and  especially 
during  the  last  twenty-five  years,  conditions  have  recurred 
for  large  sections  of  the  country  similar  to  those  which 
obtained  in  the  smaller  community  during  the  early  history 
of  the  nation.  The  factors  which  have  led  to  such  con- 
centration have  been  discussed,  pp.  8-31.  Concentration 
has  gone  far  for  all  industries;  and  at  the  present  time 
for  many  important  commodities  has  gone  to  the  extent 
of  monopoly,  either  through  a  single  corporation  or  by 
the  cooperation  of  a  number  of  corporations.  Staples 
in  which  the  monopolistic  factor  clearly  enters  are  steel, 
sugar,  oil,  anthracite,  beef,  tobacco,  matches,  shoe  ma- 
chinery, electrical  appliances,  and  many  others.  For  some 
of  these  commodities  a  single  corporation  controls  from 
fifty  per  cent  to  as  much  as  ninety  per  cent  of  the 
product. 

As  has  been  fully  shown  (pp.  77-78),  not  only  where  mo- 
nopoly exists,  but  where  there  is  cooperation  far  short  of 

^ "  Government  Regulation  of  Prices,"  Eugene  A.  Gilmore,  Gree/i  Bag,  1905. 
Address  before  the  Illinois  State  Bar  Association,  Charles  Carroll  Bonney, 
American  Law  Review,  Vol.  25. 
S 


258 


CONCENTRATION  AND  CONTROL 


monopoly  so   far  as    any  one    organization   is   concerned, 

prices  may  be  maintained  by  mutual  understanding,  with- 

Excessive       out  regard    to  whether    such  prices  are  reasonable    or  un- 

there^ir  ^^^  reasonable;    simply  with  reference  to  the  dividends  which 

monopoly,      may   be  secured   by  the   corporations.     It  is   believed   by 

many,  if  corporations  are  made  subject  to  publicity,  that 

they   will    not   dare    to    charge   unreasonable   prices ;    but 

the  public  should  place  no  confidence  in  this  conclusion, 

and  therefore  should  place  the  power  with  the  commissions 

to  make  orders  regarding  prices  in  such  cases  as  in  fact 

they  are  found  to  be  unreasonable. 

It  is  safe  to  say  that  under  court  enforcement  'of  laws 
against  trusts  and  combinations,  the  prices  charged  by  single 
companies  or  companies  working  in  cooperation  have  been 
such  as  to  give  unreasonably  large  profits.  This  has  been 
shown  to  be  true  for  some  of  the  corporations,  facts  con- 
cerning which  are  given  (pp.  104-150).  In  order  to  reinstate 
the  matter  in  the  mind  it  may  be  recalled  that  the  Commis- 
sioner of  Corporations  says  that  in  the  United  States  Steel 
Corporation,  upon  the  actual  investment,  from  April  1, 
1901,  to  December  31,  1910,  the  profits  have  been  twelve 
per  cent  per  annum.  Since  the  bonds  bear  five  per  cent, 
this  gives  a  much  higher  rate  of  profit  than  twelve  per  cent 
upon  that  part  of  the  stock  which  represented  substance  and 
not  water.  The  Commissioner  says  that  the  earnings  have 
been  so  great  that  the  company  has  been  able  to  put  back 
into  extensions  and  improvements,  into  the  sinking  fund, 
and  into  the  treasury  together,  from  the  net  earnings,  the 
coUossal  sum  of  $435,000,000.  This  is  in  addition  to  the 
dividends  which  have  been  declared  on  the  stock,  including 
both  substance  and  water,  and  the  interest  on  the  bonds.* 
Again,  the  profits  of  the  American  Tobacco  Company, 
according  to  the  Commissioner  of  Corporations,  have  in- 
creased "with  amazing  rapidity,  and  in  1908  were  $40,000,000 
upon  an  investment  of  $240,000,000,  or  nearly  seventeen  per 
cent.     In  addition  to  the  net  profits  declared,   enormous 


Excessive 
profits. 


1  Summarj'  of  Report  of  Commissioner  of  Corporations    on  the  Steel 
Industry,  Part  I,  p.  49. 


REMEDIES  259 

returns  have  been  derived  from  the  infiation  of  securities.^ 
Further,  it  has  been  seen,  when  the  element  of  monopoly 
entered  in  the  American  Sugar  Refining  Company  and  the 
Standard  Oil  Company,  the  margins  for  manufacture  were  in- 
creased so  as  to  give  enormous  profits.  The  Commissioner 
of  Corporations  says  that  the  di\ndends  of  Standard  Oil,  from 
1882  to  1906,  averaged  above  twenty-four  per  cent,  and 
the  profits  due  to  the  increased  margins  were  more  than 
$200,000,000.  The  total  profits  for  three  years  were 
about  $790,000,000  upon  an  investment  of  not  more  than 
$75,000,000.  Thus  in  fifteen  years  the  profits  have  been 
more  than  ten  times  the  capital  originally  invested.^ 

In  view  of  these  and  similar  facts  regarding  other  cor- 
porations, it  seems  unsafe  to  believe,  if  cooperation  be  per- 
mitted, that  the  corporations  wall  have  so  great  a  change   With  co- 
of  heart  as  to  treat  the  public  fairly.     If  cooperation  be   ^^yg^^^o^ 
permitted,  with  this  must  go  control,  else  the  public  will   control, 
be   without  protection.     It  is  perfectly  clear  under  modern 
conditions  that  the  determination  of   prices  by  legislation  is 
an  impossible  task.     However,  as  already  indicated,  under 
the  clear  legislative  right  to  control  prices.  Congress  and 
state  legislatures  may  enact  the  rule  that  prices  shall    be 
reasonable,  and  authorize    administrative    commissions    to 
regulate    prices    under    this    rule.     The   reserve   power   to 
require  modification  of  unreasonable  prices  should  be  placed 
with  the  commissions. 

In  this  connection  it  is  notable,  for  the  potash  industry 
in  Germany,  where  complete  monopoly  is  allowed,  that 
this  industry  is  placed  under  control  of  a  commission  with 
authority  to  regulate  prices.  Therefore,  at  the  present 
time  in  Germany  the  plan  of  regulating  prices  by  commis- 
sion is  in  operation  for  one  industry. 

It  may  be  said  that  the  burden  of  controlling  prices  will 
be  so  great  that  it  cannot  be  performed  by  commissions. 
Precisely  the  same  statements  were  made  regarding  rail- 

1  Report  of  the  Commissioner  of  Corporations  on  the  Tobacco  Industry, 
Part  II,  pp.  310-313 

*  Report  of  the  Commissioner  of  Corporations  on  the  Petroleum  Indua- 
try,  Part  II,  p.  iv. 


260 


CONCENTRATION  AND  CONTROL 


Control  of 
prices  a 
practical 
problem. 


Maximum 
and  mini- 
mum prices. 


roads  when  it  was  proposed  to  control  prices  of  public 
utilities  by  commission.  It  may  be  asserted,  without  fear 
of  successful  contradiction,  that  there  is  no  problem  of 
adjustment  of  prices  more  difficult  than  that  of  freight 
rates.  Different  rates  apply  to  different  classes  of  com- 
modities; rates  are  variable  under  different  conditions  of 
shipment,  such  as  quantity,  distance,  etc.  Furthermore  in 
fixing  the  price  on  freight  it  must  be  made  reasonable ; 
and  this  can  only  be  determined  by  finding  the  valuation 
of  the  enormously  complex  and  variable  class  of  railroad 
properties,  taking  into  account  the  extremely  complicated 
business  operations.  Notwithstanding  these  difficulties, 
which  by  the  railroad  men  were  declared  to  be  absolutely 
insuperable  and  impossible  to  perform  except  by  the  ex- 
perienced railroad  man,  the  commissions  have  been,  if  not 
wholly  successful,  at  least  reasonably  so.  Therefore,  the 
arguments  regarchng  the  impracticability  of  regulating  prices 
by  commission  falls  to  the  ground.  It  is  not  to  be  presumed 
that  every  price  would  be  regulated  all  of  the  time;  quite 
the  contrary;  only  exceptionally  would  prices  be  regulated 
by  the  commissions.  Whenever  a  complaint  is  made  that 
the  market  is  controlled  and  a  price  is  unjust,  then  a  com- 
mission would  investigate  and  make  an  appropriate  order; 
or  if  a  commission  reached  the  conclusion  that  a  case  needed 
investigation,  it  could  do  this  on  its  own  initiative. 

It  should  be  emphasized  that  it  is  not  proposed  that  the 
commission  shall  have  the  power  to  regulate  all  prices,  but 
only  this  power  where  there  is  monopoly  or  the  market  is 
controlled  through  cooperation.  Also  a  commission  need  go 
no  farther  in  a  given  case  than  to  fix  a  maximum  price  or 
a  minimum  price,  or  both,  as  may  be  required  by  the  situa- 
tion, leaving  competition  to  regulate  further  within  the  pre- 
scribed limits.  As  at  present,  competition  would  remain 
the  sole  regulative  of  prices  in  the  vast  number  of  instances 
where  the  market  is  not  controlled.  These  quahfications 
enormously  simplify  the  task  of  the  commissions. 

The  very  fact  that  the  commissions  have  authority  to 
regulate  prices,  when  they  become  unreasonably  high  or 


REMEDIES  261 

unreasonably  low,  would  act  as  an  important  restraining 
force  upon  those  controlling  the  market  and  tend  to  keep 
prices  reasonable,  and  thus  reduce  the  number  of  cases 
in  which  it  would  be  necessary  for  the  commissions  to  act. 
This  power  of  the  commissions,  we  know,  has  been  a  re- 
straining influence  wdth  the  railroads;  it  will  be  a  restrain- 
ing influence  in  preventing  unreasonable  prices  if  extended 
to  the  industries. 

Thus,  so  far  as  we  can  foresee,  the  task  of  the  commis- 
sions, which  to  some  men  seems  dreadful,  will  in  all  prob- 
abihty  turn  out,  as  a  matter  of  fact,  just  as  with  the  railroad 
commissions,  practicable.  The  misconceptions  which  arise 
in  connection  with  controlling  prices  may  be  illustrated 
by  statements  made  by  Mr.  William  B.  Hornblower.^  He 
says  it  means  "the  right  to  control  the  prices  of  the  neces- 
saries of  life  to  the  ultimate  consumer.  What  the  average 
American  and  his  wdfe  and  children  shall  eat  and  drink 
and  wherewithal  they  shall  be  clothed  depend  upon  the 
prices  to  be  paid  for  such  necessaries  of  life."  Apparently 
Mr.  Homblower  is  appalled  by  the  dread  of  the  catastrophe ; 
but  who  fixes  the  prices  of  these  necessities  now  ?  The  Control  of 
gigantic  corporations  certainly  in  large  measure.  It  seems  ^"^®  ^^j  ^ 
plain  that  the  public  would  be  safer  if  some  organization,  or  commis- 
having  responsibility  to  it,  had  a  part  in  the  process.  The  ®^°^' 
situation  will,  as  a  matter  of  fact,  be  substantially  as  it  is  at 
present,  in  the  initial  fixing  of  prices.  The  most  that  is 
proposed  is  that,  whenever  the  market  is  controlled  for  any 
commodity,  a  commission  fix  maximum  and  minimum  prices 
from  time  to  time  when  prices  are  found  not  in  accordance 
with  the  rule  of  reason. 

We  may  return  to  a  state  of  subdivision  of  industry  in 
which  the  economics  of  concentration  are  not  available, 
and  depend  upon  competition  to  control  prices.  If  it  were 
possible  to  secure  "tolerant"  competition,  to  use  a  phrase 
which  has  been  proposed,  under  these  conditions  it  is  prob- 
able that  the  prices  would  be  higher  than  they  are  with 
concentration,  even  with  cooperation  and  without  control. 

1  "Antitrust  Legislation  and  Litigation,"  pp.  35  and  36. 


262 


CONCENTRATION  AND  CONTROL 


Regulation 
the  oiily 
way. 


Regulation 

not 

socialism. 


That  we  can  return  to  such  a  condition  contrary  to  the 
world-wide  tendency  is  extremely  improbable,  almost  un- 
thinkable. The  other  alternative  is  to  have  large  units; 
if  we  have  large  units,  cooperation  becomes  inevitable; 
and  with  concentration  and  cooperation  the  prices  unreg- 
ulated will  become  unduly  high.  The  only  protection  for 
the  public  is  regulation  in  some  way ;  and  such  regulation 
is  best  accomplished  through  a  commission  which  has 
authority  to  place  maximum  and  minimum  prices  at  reason- 
able levels.  This  situation  has  been  very  clearly  seen  by 
Attorney-General  Wickersham.  He  says :  "If  we  permit 
the  existence  of  organizations  or  combinations  of  producers 
under  such  conditions  that  they  can  fix  prices,  there  is  no 
means  of  securing  justice  to  the  consumer  except  through 
the  government's  asserting  its  right  to  step  in  and  dictate 
prices,  or  at  least  to  require  that  they  shall  not  be  raised 
above  reasonable  limits."  ^ 

It  has  been  repeatedly  asserted  that  the  proposal  to 
give  commissions  authority  to  order  prices  to  be  changed, 
when  found  unreasonable,  is  socialism.  Precisely  the  same 
statements  were  made  when  it  was  proposed  to  give  the  rail- 
road commissions  similar  powers  a  few  years  ago.  Socialism 
to  the  extreme  conservative  means  anything  with  which  he 
does  not  agree;  but  the  meaning  of  socialism  is  the  taking 
over  and  management  of  property  by  the  state. 

The  plan  presented  does  not  involve  taking  over  property 
or  its  management.  Indeed,  it  does  not  involve  anything 
whatever  except  securing  to  the  public  a  reasonable  price  in 
the  same  manner  that  reasonable  prices  have  been  secured 
from  the  public  utilities,  the  only  way  in  which  it  has  been 
found  practicable  to  do  this.  It  is  probably  the  only  satis- 
factory way  in  which  fair  prices  can  be  secured  from  the 
great  industrial  corporations.  Under  the  plan  proposed  the 
industrial  concentrations  remain  private  property  in  charge  of 
those  who  own  them  just  as  at  present.  Being  granted  the 
privilege  of  cooperation  in  restraint  of  trade,  they  are  for- 
bidden to  take  advantage  of  the  public  by  charging  unrea- 


1  Century  Magazine,  Vol.  LXXXIII,  No.  4,  p.  619. 


REMEDIES  263 

sonable  prices ;  and  if  forbidden  so  to  charge,  there  must  be 
some  organism  which  will  enforce  the  prohibition.  The  pro- 
hibition probably  could  be  enforced  by  lawsuit  under  com- 
mon law;  and  therefore  the  proposal  made  simply  gives  to 
an  efficient  administrative  body  authority  to  do  what  the 
courts  probably  have  power  to  do  under  the  common  law,  but 
which  they  could  not  efficiently  perform.  Those  who  hold 
up  the  bogy  of  socialism  because  of  the  modest  proposal  to 
allow  commissions  to  regulate  prices,  if  they  reflect,  must 
conclude  that  they  have  only  a  bogy. 

(3)  Conservation  Enforced.  —  It  should  be  made  unlawful 
for  any  person,  firm,  or  corporation  unreasonably  to  waste 
or  maliciously  to  injure,  destroy,  or  impair  any  natural  re- 
source. This  rule  has  been  made  a  statute  in  Wisconsin.^ 
Upon  the  commissions  should  be  imposed  the  duty  of  re- 
quiring the  enforcement  of  this  rule  for  all  corporations  which 
exist  in  restraint  of  trade.  Under  this  simple  regulation  the 
major  portion  of  the  great  wastes  of  the  natural  resources 
under  the  competitive  system  (described  pp.  89-97),  so  dis- 
astrous to  the  future  of  the  race,  could  be  prevented.  The  Unneces- 
unnecessary  and  unreasonable  wastes  never  will  be  prevented  prevented^^ 
under  the  competitive  sj^stem;  indeed,  they  are  compelled 
under  that  system.  Regulation  of  the  kind  proposed  is  likely 
to  be  of  little  avail  if  enforced  only  by  the  courts.  But,  if 
any  case  of  unnecessary  waste  of  a  natural  resource  by  any 
corporation  can  be  brought  to  the  knowledge  of  a  com- 
mission by  an  individual,  and  the  commission  is  thereby 
compelled  to  investigate  the  same  and  give  appropriate, 
reasonable  orders,  we  may  expect  that  progress  "uill  be  made 
in  the  protection  of  our  natural  resources. 

Preventing  urmecessary  waste  of  a  natural  resource  may 
somewhat  raise  the  price  of  certain  articles  because  of  the 
increased  cost  of  so  conducting  the  business  as  to  give  this 
result.  Indeed,  it  is  certain  in  coal  mining  and  in  various 
other  industries,  that  if  as  large  economies  as  practicable 
be  secured,  there  will  be  slight  increases  in  prices.  In  such 
cases,  if  it  be  necessary  for  the  future  welfare  of  the  race, 

iCh.  143,  Laws  of  1911. 


264    CONCENTRATION  AND  CONTROL 

this  generation  should  be  wilhng  to  bear  the  small  additional 
expense. 

(4)  Good  Social  Conditions  Securable.  —  The  rule  of  law 
may  be  laid  down  that  corporations  which  exist  in  restraint 
of  trade  shall  conduct  their  business  in  accordance  with  good 
social  conditions.  Under  this  rule  the  administrative  com- 
missions would  have  power  to  formulate  reasonable  regula- 
tions in  these  respects  and  to  enforce  them.  From  the  point 
of  view  of  many,  the  possibility  of  introducing  reasonable 
social  conditions  for  the  labor  force  of  great  corporations 
will  be  one  of  the  greatest  arguments  in  favor  of  com- 
mission supervision.  To  others  this  will  seem  to  be  going 
very  far;  but  it  is  certain  under  the  competitive  system 
that  the  social  conditions  for  labor  are  very  unsatisfactory. 
The  mining  industry  is  extremely  hazardous.  Many  of  the 
great  manufacturers  press  their  labor  to  the  limit,  and  this 
under  dangerous  conditions.^  To  introduce  safe  and  sani- 
tary conditions  will  involve  greater  expense  in  production. 
Under  commission  regulations  the  necessary  additional  ex- 
pense may  be  compelled,  and  the  additional  price  warranted 
may  be  allowed  by  the  commissions.  Like  other  regulations 
which  have  been  suggested,  that  regarding  social  conditions 
stands  upon  its  own  merits ;  is  not  a  necessary  part  of  the 
plan  to  remedy  the  most  pressing  evils  of  the  competitive 
and  court  system  of  control  of  industry. 

(5)  Fair  Wages  Realizable.  —  If  desirable,  the  rule  of  law 
may  be  laid  down  that  corporations  doing  business  in  re- 
straint of  trade  shall  pay  fair  wages.  If  this  rule  be  adopted, 
again  it  would  rest  upon  the  commissions  incases  of  complaint 
to  determine  what  are  fair  wages  under  the  conditions  which 
exist  in  a  given  instance.  Like  other  suggestions  under  con- 
sideration, this  is  not  an  essential  part  of  the  plan  of  control, 
but  it  is  believed  to  be  one  of  the  advantages  which  may  in 
the  future  accrue  from  it. 

When  the  author  wrote  the  preceding  it  seemed  some- 
what radical  even  to  him ;  but  since  that  time  in  England, 

*  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XXVI,  p.  2322  ; 
Investigation  U.  S.  Steel  Corporation,  pp.  2835-3152  ;  3255-3454. 


REMEDIES  265 

a  country  commonly  spoken  of  in  America  as  conserva- 
tive, has  enacted  a  law  establishing  the  principle  of  a  mini- 
mum wage  for  coal  miners,  under  which  local  boards  each 
fix  such  wages  for  its  district.  This  is  a  definite  recognition 
by  statute  that  wages  must  be  paid  which  are  adequate  to 
furnish  at  least  a  livelihood,  even  if  upon  a  somewhat  low 
scale.  Probably  there  will  be  a  wide  difference  between  the 
minimum  wage  of  England  and  a  fair  wage  in  this  country, 
but  the  principle  involved  in  each  is  the  same. 

(6)  Control  of  Capitalization.  —  If  advisable,  the  law 
may  lay  down  rules  controlling  the  issue  of  stocks  and 
bonds  in  order  to  prevent  overcapitalization  and  stock 
manipulation.  This  subject,  however,  is  one  of  such  com- 
plexity that  the  author  does  not  venture  to  formulate  a 
rule  of  law  to  cover  it.  An  appreciation  of  the  difficulty 
of  so  doing  may  be  gained  by  referring  to  the  report  of 
the  Railroad  Securities  Commission  upon  stocks  and  bonds 
of  railroads.^  The  same  principles  which  apply  to  the  rail- 
roads apply  to  a  large  extent,  if  not  altogether,  to  the 
great  industrial  corporations. 

(7)  Delimitation  of  Powers  of  State  and  Nation.  —  A  clear 
rule  of  law  should  be  formulated  regarding  the  limits  of 
interstate  commerce.  The  early  decisions  under  the  Sher- 
man act  inclined  toward  narrowly  construing  the  power 
of  Congress.  The  later  decisions  of  the  court  have  gone 
much  farther,  and  it  now  looks  as  if  the  United  States 
Supreme  Court  would  sustain  the  position  that  Congress 
has  the  right  to  control  all  businesses  in  which  any  part  is 
interstate  in  character.  This  seems  the  only  logical  place 
at  which  to  stop.  If  this  position  be  accepted,  the  neces- 
sary federal  commissions  would  have  under  their  regulation 
corporations  having  any  interstate  business.  The  state 
commissions  would  have  the  authority  to  deal  with  those 
businesses  which  are  strictly  within  the  states.  This  would 
include  a  vast  field,  for  instance,  practically  all  of  the 
retail  business  of  the  country;  not  only  so,  but  the  vast 
numbers  of  small  manufactories  in  various  lines,  and  in 

>  Report  Railroad  Securities  Commission,  Washington,  D.C.,  1911. 


266    CONCENTRATION  AND  CONTROL 

many  cases  the  cooperation  of  laborers  and  professional 
men.^ 

General  Statements.  —  We  have  now  covered  the  specifica- 
tions given  on  pp.  225-231  relating  to  what  is  desirable  to  ac- 
complish by  amending  the  antitrust  legislation.  A  bill  must 
first  be  passed  covering  the  essential  points  mentioned,  (1)  to 
(4),  pp.  249-252.  If  this  can  be  accomplished,  the  existing 
futile  and  exasperating  situation  will  cease  to  exist.  Justice 
will  be  equally  obtainable  by  all.  The  frightful  wastes  of 
the  competitive  system  will,  in  a  measure  at  least,  cease. 
The  business  men  may  cooperate,  and  thus  be  able  to  carry 
on  their  business  without  becoming  criminals  under  the  law. 
Monopoly  will  not  be  permitted.  Competition  will  remain 
open. 

With  these  essentials  accomplished  the  advantages  of  the 
additional  proposed  rules  of  law,  (l)  to  (6),  pp.  255-265,  may 
be  introduced  as  fast  as  practicable.  Regarding  some  of 
them,  possibly  a  consensus  of  opinion  of  the  lawmakers  may 
soon  be  reached ;  but  if  this  does  not  prove  to  be  true,  they 
may  be  added  from  time  to  time,  as  justified  by  experience 
and  demanded  by  public  opinion. 

Section  7 

OTHER   PLANS  FOR  AMENDMENT  TO  SHERMAN  ANTI- 
TRUST LAW 

The  plan  above  proposed  for  handling  the  existing  situa- 
tion in  this  country  concerning  concentration  of  industry  is 
not  necessarily  contradictory  to,  but  may  be  regarded  as 
supplementary  of,  a  number  of  other  plans  which  have  been 
proposed. 

Federal  registration  or  license,  federal  incorporation,  and 
federal  tax  have  all  been  suggested.  Senator  Newlands  ^ 
would  permit  all  corporations  that  comply  with  definite  regu- 
lations, including  publicity,  engaged  in  interstate  commerce, 

1  See  Senator  Newlands,  Hearings,  Senate  Interstate  Commerce  Com- 
mittee, Part  XIX,  p.  1598. 

2  Hearings,  Senate  Interstate  Commerce  Committee,  Part  I,  pp.  1-4. 


REMEDIES  267 

doing  a  gross  business  of  more  than  $1,000,000  per  annum, 
to  have  federal  registration,  which  registration  would  grant 
certain  privileges.  Low  ^  would  require  a  federal  license  for 
all  corporations  having  S2,000,000  of  assets  or  paid  up  capital. 
Mr.  Elbert  H.  Gary  and  Mr.  George  W.  Perkins  ^  also  favor 
a  license  system  for  corporations  doing  an  interstate  or  inter- 
national business.  Untermeyer^  would  require  every  corpora- 
tion engaged  in  interstate  commerce,  having  gross  assets  of 
$1,000,000  or  more,  to  secure  federal  incorporation,  Low^ 
and  Wickersham  ^  would  permit,  but  would  not  require, 
federal  incorporation. 

The  industrial  commission  proposed  a  franchise  tax  upon 
corporations  in  proportion  to  the  actual  value  of  stocks  and 
bonded  debts  less  the  local  assessment  on  the  real  estate, 
and  in  addition  a  graded  tax  upon  the  incomes  of  the  cor- 
porations.^ An  allied  proposal  is  that  of  an  increasing  tax 
upon  the  capital  of  corporations.  Thus  W.  S.  Dwimiell,^  of 
Minneapolis,  suggests  "a  graded  annual  tax  upon  the  capital 
of  every  corporation  engaged  in  interstate  commerce,  whose 
capital  exceeds  a  certain  amount."  Senator  Newlands  makes 
a  similar  suggestion.^ 

Another  class  of  proposals  is  in  the  direction  of  limitation 
of  corporate  powers.  Some  men  would  altogether  prohibit 
holding  corporations  from  engaging  in  interstate  commerce. 
Among  these  is  Mr.  Seth  Low.^  He  thinks  the  evils  of 
holding  companies  are  such  that  this  class  of  corporation 
should  no  longer  exist.  According  to  his  idea,  each  company 
should  be  independent.  This  would  require  the  disintegra- 
tion of  a  great  many  companies  or  their  complete  merger. 
Others  have  argued  that  one  corporation  should  not  hold 
any  stock  in  any  other  corporation  in  any  way  whatsoever. 
A  number  of  men  have  taken  this  position  before  the  In- 
terstate Commerce  Committee.     Some  men  would  not  go 

^  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XVI,  p.  520. 

« Ibid.,  XXVI,  pp.  2407-2412  ;  XV,  p.  1091. 

8  Ibid.,  Part  XVI,  pp.  487,  488.  *  Ibid.,  Part  V,  p.  19. 

»  The  Century  Magazine,  Vol.  LXXXIII,  pp.  619-620. 

«  U.  S.  Industrial  Commission,  Vol.  XIX,  pp.  1067-1068. 

^  Hearings,  Senate  Interstate  Commerce  Committee,  Part  III,  p.  90. 

8  Ibid.,  Part  VIII,  p.  482.  » Ibid.,  Part  IX,  p.  488. 


268    CONCENTRATION  AND  CONTROL 

so  far  as  to  prohibit  holding  companies,  but  would  require 
that  the  voting  power  of  stocks  owned  by  holding  compa- 
nies should  be  eliminated.  Here  is  included  Mr.  Frederick 
W.  Kelsey.^  Still  others  would  place  a  limitation  upon 
community  of  directors  so  as  to  make  sure  that  companies, 
apparently  independent,  are  really  so.  Among  these  are 
Mr,  Louis  Brandeis.^ 

None  of  these  proposals  will  be  argued.  Each  must  stand 
upon  its  own  merits  and  justify  itself  if  it  is  to  be  adopted  by 
Congress  and  the  state  legislatures.  None  of  these  proposals 
interfere  with  the  plan  which  has  been  suggested.  If  it 
seems  advisable  to  do  any  of  these  things  either  by  inde- 
pendent act  or  as  additional  amendments  to  the  antitrust 
laws,  this  may  be  done  without  interfering  in  any  way  with 
any  of  the  proposals  made  by  the  author  on  previous  pages. 

However,  it  is  notable,  that  a  number  of  those  who  have 
suggested  the  above  measures  desire  to  place  their  execution 
as  well  as  the  execution  of  the  Sherman  antitrust  act  with  an 
administrative  commission.  Among  these  are  Newlands,^ 
Untermeyer,^  Low,^  and  Perkins.^  Further,  in  some  cases 
the  proposals  have  gone  so  far  as  to  include  the  regulation  of 
prices;  for  instance,  Untermeyer  would  lay  down  the  rule 
that  the  maximum  price  which  may  be  chargeable  "does  not 
allow  an  undue  profit." 

Section  8 

PATENT  MONOPOLY  7 

There  is  another  important  problem  in  connection  with 
combinations  in  restraint  of  trade  which  has  not  been  con- 
sidered. This  is  patent  monopoly.  Many  of  the  businesses 
in  restraint  of  trade  are  so  in  large  measure  because  they 

^  Hearings,  Senate  Interstate  Commerce  Committee,  Part'XVII,  p.  1364. 

2  Ihid.,  Part  XVI,  p.  1179.  Ubid.,  Part  I,  pp.  1,  2.; 

4  Ihid.,  Part  IX,  pp.  487,  488.  ^  Ihid.,  Part  IX,  p.  520. 

^Ihid.,  Part  XV,  p.  1102. 

■^  For  full  information  regarding  the  patent  situation,  see  Hearings  before 
the  Committee  on  Judiciary,  House  of  Representatives,  1912,  Patent  Legis- 
lation, Series  No.  1. 


REMEDIES  269 

own  patents.  The  very  idea  of  a  patent  is  monopoly.  Under 
thie  new  conditions  of  consolidation  the  patent  monopoly 
has  taken  an  entirely  new  aspect.  The  great  manufac- 
turing corporations,  such  as  the  General  Electric  Company, 
the  United  States  Shoe  Machinery  Company,  and  the 
National  Cash  Register  Company,  have  acquired  a  large 
part  of  the  patents  which  affect  their  businesses.  Some  of 
these  they  have  used ;  others  they  have  simply  acquired  to 
prevent  use  by  others.  A  combination  of  patents  under  one 
ownership,  as  compared  with  a  single  patent,  has  produced 
a  situation  regarding  patents  somewhat  analagous  to  that 
which  arose  w^hen  partnerships  of  corporations  were  formed 
from  corporations,  by  means  of  the  device  of  trusts.  The  danger 
The  vast  importance  of  this  question  of  patent  monopoly  °Qg^°patents. 
has  become  even  more  clear  through  a  recent  decision  of  the 
Supreme  Court  of  the  United  States.^  Previous  decisions 
have  made  it  clear  that  the  patentee  may  restrict  the  time, 
place,  or  manner  in  which  a  patented  machine  may  be  used. 
The  recent  decision  of  the  court,  however,  goes  farther  than 
this  in  that  it  is  held  that  restrictions  may  be  made  regard- 
ing other  things  necessary  for  the  use  of  the  patented 
article,  even  if  such  things  are  not  patented.  Chief  Justice 
White  and  Justices  Hughes  and  Lamar  strongly  dissent  from 
this  opinion.  They  hold  this  principle  to  be  dangerous  and 
give  as  illustrations  of  these  dangers  the  following.  The 
quotations  are  from  the  Chief  Justice :  — 

"Take  a  patentee  selling  a  patented  engine.  We  will  now 
have  the  right  by  contract  to  bring  under  the  patent  laws  all 
contracts  for  coal  or  electrical  energy  used  to  afford  power 
to  work  the  machine  or  even  the  lubricants  employed  in  its 
operation.  Take  a  patented  carpenter's  plane.  The  power 
now  exists  in  the  patentee  by  contract  to  validly  confine  a 
carpenter  purchasing  one  of  the  planes  to  the  use  of  lumber 
sawed  from  trees  grown  on  the  land  of  a  particular  person  or 
sawed  by  a  particular  mill.  Take  a  patented  cooking  utensil. 
The  power  is  now  recognized  in  the  patentee  to  bind  by  con- 

1  Henry  et  al.  v.  A.  B.  Dick  Company,  U.  S.  Supreme  Court,  20,  October 
Term,  1911. 


270  CONCENTRATION  AND  CONTROL 

tract  one  who  buys  the  utensil  to  use  in  connection  with  it 
no  other  food  supply  but  that  sold  or  made  by  the  patentee. 
Take  the  invention  of  a  patented  window  frame.  It  is  now 
the  law  that  the  seller  of  a  frame  may  stipulate  that  no  other 
material  shall  be  used  in  a  house  in  which  the  window  frames 
are  placed  except  such  as  may  be  bought  from  the  patentee 
and  seller  of  the  frame.  Take  an  illustration  which  goes  home 
to  every  one  —  a  patented  sewing-machine.  It  is  now  es- 
tablished that  by  putting  on  the  machine,  in  addition  to  the 
notice  of  patent  required  by  law,  a  notice  called  a  license  re- 
striction, the  right  is  acquired,  as  against  the  whole  world, 
to  control  the  purchase  by  users  of  the  machine  of  thread, 
needles,  and  oil  lubricants  or  other  materials  convenient  or 
necessary  for  operation  of  the  machine. 

"My  mind  cannot  shake  off  the  dread  of  the  vast  extension 
of  such  practices  which  must  come  from  the  decision  of  the 
court  now  rendered.  Who,  I  submit,  can  put  a  limit  upon 
the  extent  of  monopoly  and  wrongful  restriction  which  will 
arise,  especially  if  by  such  a  power  a  contract  which  other- 
wise would  be  void  as  against  public  policy  may  be  success- 
fully maintained  ?  " 

It  is  clear  that  the  situation  is  such  that  the  patent  laws 
under  the  new  conditions  will  require  amendments  to  protect 
the  public.  However,  this  matter  lies  outside  of  the  scope 
of  this  book.  It  is  mentioned  because  so  closely  related  to 
that  under  consideration;  indeed,  for  many  concentrations 
of  industry,  patents  have  been  the  basis  upon  which  monopoly 
has  been  secured. 

Section  9 

POSSIBLE    OBJECTIONS    TO    PLAN    OF   REGULATION    PRO- 
POSED 

In  order  that  the  remedial  plan  proposed  may  be  fairly  be- 
fore the  readers  of  this  book,  the  writer  will  now  consider 
some  objections  which  may  possibly  be  raised  regarding  it. 

(1)  It  may  be  said  that  the  commission  form  of  regulation 
is  new  and  untried ;   that  the  great  corporations  desirous 


REMEDIES  271 

of  controlling  the  commissions  will  be  too  powerful  for 
them;  and  that  the  public  will  not  be  protected.  In  the 
minds  of  many,  this  will  be  a  serious  objection  to  the 
proposals  made ;  and  the  danger  is  one  which  must  be  es- 
pecially guarded  against.  One  of  these  guards  should  be 
that  all  of  the  business  of  a  commission  should  be  open.  The 
complaint  made,  the  conduct  of  a  case,  the  facts  brought 
out,  the  reasoning  relating  to  the  facts,  and  the  conclusion  Public  must 
reached  should  all  be  made  public.     In  short,  in  order  that  '^°j<^.co™- 

'■  '  mission  ac- 

the  people  shall  be  protected,  there  should  be  the  same  pub-  countable, 
licity  in  the  actions  of  a  commission  as  is  now  demanded 
regarding  the  actions  of  a  corporation.  In  time,  methods  of 
public  bookkeeping  will  be  developed  and  rules  formulated 
to  guide  the  commissions  in  their  work  and  thus  enable  them 
to  perform  their  duties,  notwithstanding  the  great  pressure 
which  may  be  brought  to  bear  upon  them. 

If  it  be  desirable,  a  further  precaution  may  be  inserted  simi- 
lar to  that  which  exists  concerning  commissions  in  Europe. 
Upon  the  request  of  a  certain  number  of  senators  or  repre- 
sentatives of  Congress  or  of  state  legislators  a  commission 
may  be  summoned  before  the  creating  legislative  body  and 
be  required  to  give  answers  to  written  interrogatories  and  be 
interrogated  regarding  any  matter  which  is  before  the  com- 
mission. Further,  if  the  above  are  not  sufficient  to  guard  the 
public  interest,  provision  may  be  made  that  any  member  of 
a  commission  may  be  removed  for  cause  by  the  President  or 
governor,  or  by  Congress  or  legislature  upon  the  passage  of  a 
joint  resolution.  By  these  various  methods  the  public  may 
be  amply  protected  against  any  failure  of  a  commission  to 
perform  its  duty. 

While  there  is  the  possible  danger  on  one  side  that  the  pow- 
erful interests  will  control,  on  the  other  side  there  v,il\  be  the 
fear  by  the  corporations  that  the  commissions  will  go  too  far 
and  raid  property.  But  on  this  side  there  is  adequate  pro- 
tection under  the  Constitution,  since  from  the  commission 
there  is  appeal  to  the  courts ;  and  the  courts  under  the  14th 
amendment  are  obliged  to  prevent  the  confiscation  of 
property.     If  on  both  sides  there  be  fear  of  the  power  of 


272    CONCENTRATION  AND  CONTROL 

trade  commissions,  it  may  be  regarded  as  probable  that  a 
judicial  balance  will  be  maintained. 

While  the  early  experience  in  this  country  with  commissions 
for  control  of  railroads  was  not  especially  encouraging,  the 
experience  we  have  had  with  the  railroad  commissions  later 
appointed,  especially  illustrated  by  that  of  Wisconsin,  and 
by  the  Interstate  Commerce  Commission,  since  it  has  been 
given  adequate  authority,  is  very  hopeful. 

Doubtless  difficulties  will  appear  in  connection  with  the 
administrative  work  of  the  commissions;  but  these  do  not 
seem  likely  to  be  nearly  so  serious  as  those  which  confront  us 
if  the  Sherman  act  is  invoked  to  destroy  great  concentra- 
tions in  industry  to  the  extent  that  will  be  necessary  in 
order  to  return  to  adequate  control  of  prices  through  com- 
petition. 

(2)  It  may  be  said  that  the  greater  corporations  will  destroy 
the  smaller  corporations  in  the  same  business.  The  experi- 
ence of  other  countries  where  cooperation  is  permitted  gives 
no  just  ground  for  this  conclusion.  We  have  seen  in  this 
country  under  the  competitive  system  and  under  severe 
laws  against  combination,  that  many  small  corporations 
have  been  destroyed.  Upon  the  other  hand,  in  England 
and  in  Germany,  where  the  various  corporations  have 
been  allowed  to  cooperate,  while  there  has  also  been  a 
strong  tendency  to  consohdation,  the  concentration  has  not 
gone  nearly  so  far  as  in  America.  Also  the  smaller  com- 
petitors in  most  cases  have  been  made  a  useful  part  of  the 
cooperative  or  consolidated  system  rather  than  destroyed. 

(3)  If  the  amendments  include  the  regulation  of  prices,  it 
may  be  said  that  it  will  be  especially  difficult  to  control 
prices  in  those  industries  where  the  corporations  do  not 
manage  the  business  from  the  source  to  the  final  product. 
As  we  have  seen,  the  United  States  Steel  Corporation 
handles  its  materials  from  the  ore,  limestone,  and  coal  to  the 
finished  product.  In  such  a  case  the  problem  of  controlling 
prices  is  easier  than  the  control  of  the  prices  of  freight.  But  in 
cases  illustrated  by  tobacco,  beef,  sugar,  and  oil,  the  combi- 
nation is  a  buyer  as  well  as  a  seller.    In  such  an  instance  if 


REMEDIES  273 

the  corporation  too  greatly  depresses  the  price  of  its  supply,  the  Cannot  un- 
product  will  not  be  furnished.     In  the  long  run,  if  the  farmers      -^  depresa 
do  not  get  a  fair  price,  they  will  not  produce  beef  cattle  nor 
tobacco ;  they  will  raise  something  else. 

This  is  illustrated  by  the  beet  sugar  industry.  For  any 
district  the  purchase  of  beets  by  the  sugar  factory  corporation 
is  a  practical  monopoly,  because  transportation  is  so  expen- 
sive for  the  heavy  product,  beets,  that  they  cannot  go  to  dis- 
tant factories.  This  being  the  situation,  the  farmer  will  not 
plant  beets  unless  he  knows  in  advance  the  price  he  will 
receive.  The  sugar  corporations  are  obliged  to  offer  a  price 
for  beets  which  will  induce  the  farmers  to  raise  a  sufficient 
supply  for  the  adjacent  factory.  If  the  price  offered  is  not 
sufl&cient,  the  factory  will  lack  material  for  its  run. 

As  we  have  seen,  pp.  148-149,  there  is  little  complaint  that 
the  American  Sugar  Refining  Company  has  unduly  depressed 
the  price  of  raw  sugar.  It  has  been  charged  that  the  packers 
at  different  times  have  unduly  depressed  the  price  of  beef 
cattle ;  but  if  this  practice  existed,  it  has  largely  ceased,  for  it  is 
now  realized  by  the  combination  that  it  must  maintain  a  rea- 
sonable price  for  beef,  cattle,  hogs,  sheep,  etc.,  in  order  to  se- 
cure a  sufficient  amount  of  raw  material  through  the  years. 
The  farmers  will  only  permanently  raise  material  for  this 
industry  when  it  is  not  as  profitable  to  them  as  other 
products. 

Precisely  the  same  principle  applies  to  tobacco.  While 
undoubtedly  there  have  been  causes  for  complaint  against  the 
American  Tobacco  Company,  if  this  organization  had  been  al- 
lowed to  continue  permanently,  it  is  certain  that  it  would 
have  been  obliged  to  be  fair  and  reasonable  in  prices  paid  for 
the  raw  material ;  otherwise,  the  combination  would  not  be 
able  to  secure  a  sufficient  amount  to  meet  the  demands. 

For  many  years  the  great  monopolistic  company.  Standard 
Oil,  bought  by  far  the  larger  portion  of  the  crude  oil  for 
its  refineries  from  hundred  of  sellers.  In  the  early  days  of 
Standard  Oil  there  was  complaint  regarding  depression  of 
prices ;  but  for  many  years  the  prices  paid  by  the  Standard 
have  been  sufficient  to  induce  drillers  to  search  for  and  obtain 


274    CONCENTRATION  AND  CONTROL 

sufficient  oil  to  supply  the  market.  Indeed,  there  has  been 
upon  the  whole  an  oversupply,  which,  from  the  point  of  view 
of  conservation,  is  a  detriment  to  the  nation.  So  long  as  the 
prices  paid  for  a  natural  resource  produced  from  the  interior 
of  the  earth  are  sufficient  to  supply  the  market  not  only 
in  this  country,  but  for  a  large  part  of  the  world,  this  is 
evidence  that  the  price  of  the  raw  material  has  not  been  un- 
duly depressed. 

The  principle  which  applies  to  the  above  commodities 
applies  to  all  commodities  in  which  the  corporations  are  buy- 
ers as  well  as  sellers.  While  there  may  have  been  occasion 
for  complaint  from  time  to  time,  probably  the  producers  of 
raw  products  for  the  great  corporations  have  had  as  equitable 
prices  as  are  ordinarily  secured  for  those  commodities  con- 
cerning which  uru-estrained  competition  completely  controls. 

In  further  answer  to  the  statement  that  there  will  be 
cause  for  complaint  regarding  prices  paid  for  materials  by  the 
great  corporations,  it  may  be  said  that  if  prices  at  which  the 
products  of  the  combinations  are  sold,  are  subject  to  control  of 
commissions  and  profits  cannot  be  excessive,  there  will  be  no 
strong  motive  to  depress  unduly  the  purchase  prices  of  the  ma- 
terials which  must  be  bought.  Indeed,  it  is  a  probable  advan- 
tage of  the  plan  proposed  that  fair  and  reasonably  uniform 
prices  will  be  secured  for  the  products  needed  by  the  combi- 
nations. 

(4)  It  may  be  said  under  the  plan  in  which  prices  are 
held  at  a  reasonable  level  that  the  income  on  the  bonds  and 
stocks  of  a  corporation,  so  far  as  they  are  substance,  not 
water,  will  be  guaranteed ;  and,  therefore,  an  organization  will 
rest  on  its  laurels,  and  progress  will  be  stayed.  The  answer 
to  this  objection  is  that  the  proposal  made  eliminates  only 
competition  in  prices ;  it  does  not  interfere  with  competi- 
tion in  service  (see  p.  75).  If  a  ton  of  freight  be  shipped 
from  New  York  to  Chicago,  it  makes  no  difference  what  road 
is  used ;  the  rate  is  the  same.  But  has  competition  ceased  be- 
tween the  railways  rurming  between  New  York  and  Chicago  ? 
On  the  contrary,  it  is  of  the  keenest.  The  agents  of  these 
roads  are  everywhere  soliciting  business,  explaining  advan- 


REMEDIES  275 

tages,  promising  to  put  through  freight  promptly.  Simi- 
larly, for  passenger  service ;  the  speeds  have  been  increased  ; 
new  steel  cars  have  been  introduced ;  more  trains  are  run. 
In  many  ways  the  service  is  becoming  safer,  more  reliable, 
convenient,  and  satisfactory.  Why  is  this  true  when  prices 
are  the  same  ?  Because  the  road  which  makes  most  progress 
and  is  most  efficient  will  do  more  business,  and  be  able  to  pay 
a  larger  profit  than  its  competitors.  Those  who  know  the  facts 
appreciate  how  keen  is  the  competition  between  the  New  York 
Central  and  Pennsylvania  systems ;  each  has  done  its  best  to 
increase  and  extend  its  facilities  in  order  to  get  the  largest 
possible  proportion  of  business. 

At  this  point  we  see  a  fatal  defect  of  another  proposal  which 
has  been  made  regarding  combinations,  viz.,  that  prices  be 
controlled  through  limiting  profits  or  dividends.^     This  pro- 
posal would  stifle  competition  in  business,  and  hence  progress ; 
because,  if  an  organization  be  sufficiently  efficient  so  that  it 
gives  just  the  returns  allowed,  five  or  six  per  cent  on  its  bonds, 
and  seven  per  cent  on  the  stock,  why  do  anything  more? 
Hence  the  proposal   to   control   the  trusts   by  limiting  in- 
comes and  dividends  is  economically  fallacious.     The  corpora- 
tion which  is  efficiently  managed  should  pay  a  higher  dividend  Controlling 
than  the  poorly  managed  concern.     Indeed,  in  Boston  the  d[°ideii"dg 
gas  company  is  allowed  to  pay  higher  dividends  in  proportion  unsound 
as  it  lowers  the  price  of  gas.     The  commissions  may  find  p^y°™' 
it  advantageous  to  use  this  principle  and  thus  give  strong 
inducements  for  high  efficienc3^ 

Therefore,  it  is  insisted  that  the  plan  advocated  does  not 
do  away  with  competition  in  service.  It  does  not  interfere 
with  technical  improvements,  as  held  by  Clark ;  ^  it  does  not 
interfere  with  the  installation  of  cost  accounting,  nor  any  of 
the  advantages  of  the  competitive  system,  except  competition 
in  prices ;  and,  as  already  seen,  competition  in  prices  is  far 
from  an  unqualified  gain. 

(5)  It  may  be  objected  to  the  proposal  to  allow  concentra- 

1  Professor     J.    Laurence    Laughlin,    Hearings,    United    States    Senate 
Interstate  Commerce  Committee,  Part  XIV,  p.  1000. 
^  Ibid.,  FaxtXIY,  p.  972. 


276 


CONCENTRATION  AND  CONTROL 


Banking 
reform. 


Numerous 
commissions 
may  be 
necessary. 


tion  and  industrial  cooperation  that  this  "Rail  result  in  putting 
the  major  portion  of  the  money  for  the  great  lines  of  business  in 
a  few  centers ;  in  short  that  it  vnW  promote  the  so-called  money- 
trust.  Indeed,  this  objection  has  been  made  regarding  large 
concentrations  of  industry  by  Mr,  Brandeis.^ 

The  reform  of  our  banking  system  is  a  question  to  be 
handled  by  separate  legislation.  We  already  have  a  report 
by  the  Aldrich  Monetary  Commission  upon  improvements  of 
the  banking  system  of  this  country,  which  admittedly  is  far 
behind  that  of  other  great  industrial  nations.  Many  other 
plans  have  been  proposed.  Our  banking  system  is  now  being 
investigated  by  Congress  and  is  the  subject  of  special  study 
by  the  National  Citizens'  League  for  the  Promotion  of  a 
Sound  Banking  System.  As  to  what  should  be  done  to 
improve  the  situation  in  banking,  the  author  will  venture  no 
opinion;  but  he  insists  that  this  problem  is  one  which  of 
necessity  must  be  solved  by  special  laws  and  indepen- 
dently of  the  general  plans  for  conducting  industry. 

(6)  It  may  be  said  that  the  plan  for  regulating  all  concen- 
trations and  cooperations  in  industry  which  go  to  the  point 
of  controlling  the  market  will  create  a  great  series  of  com- 
missions, national  and  state.  This  is  undoubtedly  the  fact. 
It  may  well  be  in  the  future  that  in  addition  to  an  interstate 
trade  commission,  which  has  the  position  in  industry  of  a 
supreme  commission,  there  may  be  subordinate  to  it  another 
class  of  commissions  to  which  must  first  go  certain  questions 
exactly  as  law  cases  commonly  first  go  to  district  and  circuit 
courts.  In  the  states,  it  is  probable  that  a  single  commis- 
sion with  its  scientific  staff  of  experts  will  be  sufficient  to 
handle  the  business  that  will  come  before  it ;  but  if  neces- 
sary, there  may  be  created  in  the  states  two  classes  of  com- 
missions precisely  as  there  is  more  than  one  class  of  courts. 
Certainly  whatever  cost  is  necessary  in  order  to  relieve  the 
present  chaotic  condition  of  affairs  and  to  secure  justice  and 
development,  that  cost  is  justified. 

(7)  It  may  be  said  that  the  plan  proposed  provides  no 
method  of  punishment  for  those  who   have  violated   the 


1  Hearings,  Senate  Interstate  Commerce  Committee,  Part  XVI,  p.  1189. 


REMEDIES  277 

national  and  state  laws  against  restraint  of  trade.     The 
answer  is  that  there  is  nothing  in  the  proposals  made  which 
relieves  any  individual  or  corporation  from  the  sins  of  the  Shall  the 
past.     Some   men   believe   that   those   who   have   violated  ^^^^ 

'^  escape  r 

the  trust  laws,  and  especially  those  who  have  engaged  in  the 
grosser  unfair  practices,  should  not  escape  punishment.  Upon 
this  point  the  author  has  merely  to  say  that  he  is  far  more 
interested  in  the  future  than  in  the  past.  The  proposals 
which  have  been  made  are  for  the  future.  They  leave  the 
question  of  punishment  of  individuals  for  violation  of  exist- 
ing laws  to  be  settled  by  the  good  sense  of  the  community. 
It  may  be  that  there  will  be  advantage  in  punishing  some 
of  those  who  have  indulged  in  the  more  outrageous  forms 
of  unfair  practices.  When  in  the  future  we  have  rational 
laws  with  administrative  commissions  to  enforce  them,  we 
shall  have  a  situation  for  industrial  corporations  like  that  we 
now  have  for  the  railroads.  There  will  be  comparatively  few 
who  wall  violate  the  laws,  and  it  will  be  possible  to  punish  those 
who  do  violate  them. 

Section  10 

CONCLUSION 

In  conclusion  there  is  presented  as  the  solution  of  the 
difficulties  of  the  present  industrial  situation,  concentration, 
cooperation,  and  control.  Through  concentration  we  may 
have  the  economic  advantages  coming  from  magnitude  of  opera- 
tions. Through  cooperation  we  may  hmit  the  wastes  of  the 
competitive  system.  Through  control  by  commission  we 
may  secure  freedom  for  fair  competition,  elimination  of  unfair 
practices,  conservation  of  our  natural  resources,  fair  wages, 
good  social  conditions,  and  reasonable  prices. 

Concentration  and  cooperation  in  industry  in  order  to 
secure  efficiency  are  a  world-wide  movement.  The  United 
States  cannot  resist  it.  If  we  isolate  ourselves  and  insist 
upon  the  subdivision  of  industry  below  the  highest  economic 
efficiency  and  do  not  allow  cooperation,  we  shall  be  defeated 
in  the  world's  markets.  We  cannot  adopt  an  economic  sys- 
tem less  efficient  than  our  great  competitors,  Germany,  Eng- 


278    CONCENTRATION  AND  CONTROL 

land,  France,  and  Austria.  Either  we  must  modify  our  pres- 
ent obsolete  laws  regarding  concentration  and  cooperation  so 
as  to  conform  with  the  world  movement,  or  else  fall  behind  in 
the  race  for  the  world's  markets.  Concentration  and  coop- 
eration are  conditions  imperatively  essential  for  industrial 
advance;  but  if  we  allow  concentration  and  cooperation, 
there  must  be  control  in  order  to  protect  the  people,  and  ade- 
quate control  is  only  possible  through  the  administrative  com- 
mission. Hence,  concentration,  cooperation,  and  control 
are  the  key  words  for  a  scientific  solution  of  the  mighty  indus- 
trial problem  which  now  confronts  this  nation. 


APPENDIX 
THE  SHERMAN  ANTITRUST  LAW 

[Act  of  July  2,  1890  (26  Stat.,  209)] 

An  Act  to  protect  trade  and  commerce  against  unlawful 

restraints  and  monopolies. 

Be  it  enacted  by  the  Senate  and  House  of  Representatives  of 

the  United  States  of  America  in  Congress  assembled, 

Sec.  1.  Every  contract,  combination  in  the  form  of  trust 
or  otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce 
among  the  several  States,  or  wdth  foreign  nations,  is  hereby 
declared  to  be  illegal.  Every  person  who  shall  make  any 
such  contract  or  engage  in  any  such  combination  or  con- 
spiracy, shall  be  deemed  guilty  of  a  misdemeanor,  and,  on 
conviction  thereof,  shall  be  punished  by  fine  not  exceeding 
five  thousand  dollars,  or  by  imprisonment  not  exceeding  one 
year,  or  by  both  said  punishments,  in  the  discretion  of  the 
court. 

Sec.  2.  Every  person  who  shall  monopolize,  or  attempt 
to  monopolize,  or  combine  or  conspire  with  any  other 
person  or  persons,  to  monopolize  any  part  of  the  trade  or 
commerce  among  the  several  States,  or  with  foreign  nations, 
shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  conviction 
thereof,  shall  be  punished  by  fine  not  exceeding  five  thousand 
dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by 
both  said  punishments,  in  the  discretion  of  the  court. 

Sec.  3.  Every  contract,  combination  in  form  of  trust  or 
otherwise,  or  conspiracy,  in  restraint  of  trade  or  commerce 
in  any  Territory  of  the  United  States  or  of  the  District  of 
Columbia,  or  in  restraint  of  trade  or  commerce  between  any 
such  Territory  and  another,  or  between  any  such  Territory  or 

279 


280  APPENDIX 

Territories  and  any  State  or  States  or  the  District  of  Colum- 
bia, or  with  foreign  nations,  or  between  the  District  of  Co- 
lumbia and  any  State  or  States  or  foreign  nations,  is  hereby 
declared  illegal.  Every  person  who  shall  make  any  such 
contract  or  engage  in  any  such  combination  or  conspiracy, 
shall  be  deemed  guilty  of  a  misdemeanor,  and,  on  conviction 
thereof,  shall  be  punished  by  fine  not  exceeding  five  thousand 
dollars,  or  by  imprisonment  not  exceeding  one  year,  or  by 
both  said  punishments,  in  the  discretion  of  the  court. 

Sec.  4.  The  several  circuit  courts  of  the  United  States 
are  hereby  invested  with  jurisdiction  to  prevent  and  restrain 
violations  of  this  act ;  and  it  shall  be  the  duty  of  the  several 
district  attorneys  of  the  United  States,  in  their  respective 
districts,  under  the  direction  of  the  Attorney-General,  to 
institute  proceedings  in  equity  to  prevent  and  restrain  such 
violations.  Such  proceedings  may  be  by  way  of  petition 
setting  forth  the  case  and  praying  that  such  violation  shall  be 
enjoined  or  otherwise  prohibited.  When  the  parties  com- 
plained of  shall  have  been  duly  notified  of  such  petition  the 
court  shall  proceed,  as  soon  as  may  be,  to  the  hearing  and 
determination  of  the  case ;  and  pending  such  petition  and 
before  final  decree,  the  court  may  at  any  time  make  such 
temporary  restraining  order  or  prohibition  as  shall  be  deemed 
just  in  the  premises. 

Sec.  5.  Whenever  it  shall  appear  to  the  court  before  which 
any  proceeding  under  section  four  of  this  act  may  be  pending, 
that  the  ends  of  justice  require  that  other  parties  should  be 
brought  before  the  court,  the  court  may  cause  them  to  be 
summoned,  whether  they  reside  in  the  district  in  which  the 
court  is  held  or  not;  and  subpoenas  to  that  end  may  be 
served  in  any  district  by  the  marshal  thereof. 

Sec.  6.  Any  property  owned  under  any  contract  or  by  any 
combination,  or  pursuant  to  any  conspiracy  (and  being  the 
subject  thereof)  mentioned  in  section  one  of  this  act,  and 
being  in  the  course  of  transportation  from  one  State  to 
another,  or  to  a  foreign  country,  shall  be  forfeited  to  the 
United  States,  and  may  be  seized  and  condemned  by  like 
proceedings  as  those  provided  by  law  for  the  forfeiture, 


APPENDIX  281 

seizure,  and  condemnation  of  property  imported  into  the 
United  States  contrary  to  law. 

Sec.  7.  Any  person  who  shall  be  injured  in  his  business 
or  property  by  any  other  person  or  corporation  by  reason  of 
anything  forbidden  or  declared  to  be  unlawful  by  this  act, 
may  sue  therefor  in  any  circuit  court  of  the  United  States  in 
the  district  in  which  the  defendant  resides  or  is  found,  with- 
out respect  to  the  amount  in  controversy,  and  shall  recover 
threefold  the  damages  by  him  sustained,  and  the  costs  of 
suit,  including  a  reasonable  attorney's  fee. 

Sec.  8.  That  the  word  "person,"  or  "persons,"  wherever 
used  in  this  act  shall  be  deemed  to  include  corporations  and 
associations  existing  under  or  authorized  by  the  laws  of  either 
the  United  States,  or  the  laws  of  any  of  the  Territories,  the 
laws  of  any  State,  or  the  laws  of  any  foreign  country. 


INDEX 


Administrative  commissions,  249, 
268. 

Advertising,  expense,  89 ;  saved  in 
large  scale  production,  14. 

Agreements,  64,  81,  83,  133,  201. 

Agricultural  implements,  statistics, 
46,  47. 

Alabama,  laws  against  combination, 
192,  193. 

Aldrich  Monetary  Commission,  275. 

American  Cigar  Company,  184. 

American  Mining  Congress,  92. 

American  Snuff  Company,  184. 

American  Steel  Hoop  and  Wire  Com- 
pany, 14,  15. 

American  Stogie  Company,  184. 

American  Sugar  Refining  Company, 
13 ;  attacked  under  Sherman  law, 
191 ;  decisions  under  Sherman  law, 
177 ;  excessive  profits,  149 ;  or- 
ganization, 147. 

American  Tobacco  Company,  140- 
147  ;  amount  of  business  controlled 
by,  49 ;  dissolution,  70  ;  excessive 
profits,  145 ;  organization,  140 ; 
overcapitalization,  28,  29,  142  ;  un- 
fair practices,  24. 

Amsterdam  Supply  Companj%  184. 

Anthracite  coal,  33  ;  output  and  price 
fixed,  63  ;  price,  62  ;  waste,  90 ; 
see  Coal. 

Antitrust  laws,  necessary  amend- 
ments, 249,  251. 

Arbuckle  Brothers  Company,  148. 

Arkansas,  laws  against  combina- 
tion, 192,  193. 

Armour  Company,  152. 

Associations,  informal  and  formal, 
60 ;  regulations,  63. 

Austria,  concentration  in,  219. 

Banking  reform,  275. 

Beet  sugar,  statistics,  48. 

Belgium,  cartels,  221. 

"Big     Six,"     150-154;      indictment 

against,  154. 
Bogle,  Walter  S.,  referred  to,  91. 
Boots  and  shoes,  statistics,  52. 


Boycotts,     illegal     under     Sherman 

Law,  179. 
Brandeis,   Louis  D.,  referred  to,    11, 

13,  19,  98,  185,  232,  267,  275. 
Brooks,  T.  J.,  referred  to,  67. 
Bryan,  W.  J.,  referred  to,  230,  251. 
Butter,  cheese,  and  condensed  milk, 

statistics,  47,  48. 
By-products,  saving  of ,  11. 

California,  laws  against  combination, 
193 ;  railroad  commission,  234 ; 
water  powers,  162,  165. 

Callbreath,  J.,  referred  to,  92. 

Cambria  Steel  Company,  126. 

Capital  and  product,  ratio  between,  59. 

Capitalization,  control  of,  265. 

Carnegie  Company,  18. 

Cartels,  207,  212,  220,  221,  223. 

Cities,  growth  due  to  concentration, 
19. 

Civil  War,  effect  on  industrial  de- 
velopment, 1 ;   concentration,  4. 

Clay  products,  statistics,  41. 

Coal,  saving  by  use  of  water  power, 
164  ;   see  Anthracite  coal. 

Coats,  J.  &  P.,  Thread  Company, 
204,  205. 

Coke,  statistics,  38 ;  waste  in  making, 
94. 

CoUer,  E.  H.,  referred  to,  67. 

Colorado,  water  powers,  162,  165. 

Combined  textiles,  statistics,  56,  57. 

Commerce  court,  240. 

Commercial  travelers,  number  re- 
duced by  large  scale  production,  14. 

Commission  administration,  pure 
food  laws,  245. 

Commission  control,  California,  234; 
Iowa,  235 ;  Massachusetts,  234 ; 
New  York,  235  ;  Wisconsin,  236  ; 
United  States,  238  ;  industrial  cor- 
porations, 248,  252  ;  prices,  261 ; 
public  utilities,  233. 

Commonwealth  Power,  Railway,  and 
Light  Company,  163. 

Communication,  development,  4; 
effect  on  freight,  6. 


283 


2S4 


INDEX 


Competition,  among  steel  companies, 
139 ;  between  different  classes  of 
dealers,  82 ;  breakdown,  7G ;  de- 
cline in  retail  trade,  83 ;  effect  on 
combination,  99 ;  effect  on  con- 
servation, 89 ;  effect  on  public 
utilities,  32 ;  effect  of  railway 
development,  65 ;  elimination,  a 
cause  of  concentration,  26 ;  en- 
trance of  outside,  86 ;  failure  to 
regulate  price,  78  ;  failure  to  regu- 
late quality,  76,  245 ;  faith  in,  74, 
76,  87;  freedom  in,  172;  illegiti- 
mate, 143;  in  England,  169;  in 
price,  73  ;  in  quality,  72  ;  in  serv- 
ice, 75 ;  kinds,  72 ;  necessary  to 
retain,  225,  252 ;  of  United  States 
in  world's  markets,  224 ;  personal 
element  in,  75 ;  position  of  Ger- 
many and  Great  Britain,  221 ;  po- 
tential, 84 ;  unfair,  German  laws, 
219 ;  unrestrained,  98 ;  useful- 
ness, 87  ;  wastes,  88,  97. 

Conley  Foil  Company,  184. 

Conservation,  effect  of  competition 
on,  89,  on  prices,  263 ;  enforce- 
ment of  laws,  263  ;  Wisconsin  law, 
263. 

Copper,  waste,  95. 

Corporation  laws  of  New  Jersey,  70. 

Cost  of  production,  20. 

Cotton  and  wool  manufactories, 
statistics,  54,  55. 

Cotton  Oil  Company,  13. 

Dairy  products,  prices  fixed,  64. 
Danbury  hatters,  180. 
Diamond  Match  Company,  33,  71. 
Division   of   business   and   territory, 

a  cause  of  concentration,  26. 
Drawbacks,  22,  24. 
Du  Pont  Powder  Company,  187. 
Dwinnell,  W.  S.,  referred  to,  267. 

Electrical  machinery,  statistics,  39. 
Ely,  R.  T.,  referred  to,  85,  233. 
England,    concentration,    203 ;     iron 

and    steel,    204 ;     laws    regarding 

cooperation,  167. 
Engrossing,  167. 
Enhancing,  167. 

Farmers'     Educational     Cooperation 

Union,  67. 
Farmers'  selling  agencies,  80. 
Florida,   laws    against   combination, 

192. 


Foreign  trade,  advantage  of  concen- 
tration in,  15  ;  effect  of  organiza- 
tion of  U.  S.  Steel  Corporation  on, 
19. 

Forestalling,  167. 

France,  concentration  in,  220. 

Freights,  cooperation  in  reference  to 
rates,  78;  cross,  11;  effect  of  tele- 
graph and  telephone  upon,  6. 

Fruit  Growers'  Association  of  Cali- 
fornia, 67. 

Fruit  growers'  exchanges,  66. 

Gary,  E.  H.,  referred  to,  63,  139,  266. 

General  corporation  act  of  New  York, 
21. 

General  Electric  Company,  control 
of  patents,  24 ;  dissolution  by 
mutual  agreement,  187 ;  produc- 
tion, 39  ;  water  power  controlled 
by,  163. 

Georgia,  laws  against  combination, 
193  ;   water  powers,  163. 

German  Steel  Combine,  207. 

Germany,  concentration  in,  206; 
iron  and  steel  in,  207. 

Gilmore,  E.  A.,  referred  to,  257. 

Glass,  statistics,  41,  42. 

Good  will,  capitalization  of,  28. 

Gould  interests,  water  power  con- 
trolled by,  163. 

Hatton,  W.  H.,  referred  to,  236. 
Holding  corporations.  69. 
Holmes,  J.  A.,  referred  to,  90,  91,  94. 
Hornblower,  W.  B.,  referred  to,  261. 
Hosiery   and    knit   goods,    statistics, 

55. 
Huston,  A.  F.,  referred  to,  62. 

Ice,  manufactured,  statistics,  42,  44 ; 

situation  at  Madison,  86. 
Idaho,  laws  against  combination,  192 ; 

water  powers,  165. 
Illinois,    laws    against    combination, 

193  ;  water  powers,  165. 
Imperial  Tobacco  Company,  capital- 
ization,    205 ;       formation,      143 ; 

position  in  Great  Britain,  204. 
Indiana,    laws   against   combination, 

193. 
International      Combinations,      143, 

222-224. 
International    Harvester    Company, 

14. 
International      Mercantile      Marine 

Company,  223. 


INDEX 


285 


International  Rail  Syndicate,  222. 

Interstate  commerce,  limits  of,  265. 

Interstate  Commerce  Commission, 
238. 

Investigating  departments,  13,  135. 

Iowa,  commission  control,  235  ;  laws 
against  concentration,  193. 

Iron  and  steel,  international  com- 
binations, 223  ;  situation  in  Eng- 
land, 204 ;  situation  in  Ger- 
many, 107 ;  statistics,  37. 

Iron  ore,  holdings  of  United  States 
Steel  Corporation,  129  ;  value,  129. 

Joint  Traffic  case,  178. 
Jones  and  Laughlin  Steel  Companj% 
124. 

Kansas  City  Live  Stock    Exchange, 

177. 
Kansas,    laws    against    combination, 

193. 
Kelsey,  F.  W.,  referred  to,  70,  267. 
Kentucky,  laws  against  combination, 

192,  193. 
Keystone    Watch     Case     Company, 

189. 
Knickerbocker     Ice     Company,     86. 

Labor,  combinations,  illegal  under 
Sherman  act,  179 ;  conditions, 
effect  of  concentration  upon,  17 ; 
subdivision,  9. 

Lackawanna    Steel    Company,     124. 

Large  and  small  steel  companies, 
comparison  of,   136,   139. 

La  Follette,   R.   M.,  referred  to,  236. 

Laughlin,  J.   L.,  referred  to,   82,   98. 

Laws,  concentration  accelerated  by, 
71 ;  effect  of,  on  combination,  191 ; 
of  states,  against  combination,  192, 
193 ;  effect  of,  on  forms  of  organ- 
ization, 60. 

Lead  and  zinc,  waste  in,  95. 

Leather,    statistics,    51,    52,    53. 

Levy,  Felix  H.,  referred  to,  11,  185. 

Limited  liability  corporation,  21. 

Low,  Seth,  referred  to,  266,  267,  268. 

Lumber  and  timber,  statistics,  43, 
44;  industry,    154-160. 

MacAndrews  and  Forbes  Company, 

184. 
MacRae,  F.  J.,  referred  to,  119,  139. 
Madison,    situation    in   reference    to 

ice,   86. 
Maine,  laws  against  combination,  193. 


Manufactured  ice,  statistics,  42,  44. 

Marine  combinations,  223. 

Maryland,  laws  against  combination, 
192. 

Massachusetts,  fixing  of  prices,  256 ; 
laws  against  combination,  193 ; 
railroad  commission,  234. 

Meat,  output  and  price  fixed,  63 ; 
packing  industrj',  150-154 ;  capi- 
talization, 152  ;  profits,  152  ;  sta- 
tistics, 50,  51. 

Merger,  71. 

Michigan,  laws  against  combination, 
193  ;   water  powers,  163. 

Michigan  Salt  Association,  65,  101- 
103. 

Minnesota,  laws  against  combina- 
tion, 193; 

Mississippi,  laws  against  combina- 
tion, 192,  193. 

Missouri,  laws  against  combination, 
193. 

Montana,  laws  against  combination, 
192 ;    water  powers,  162. 

National  Cash  Register  Company, 
189. 

National  Citizens'  League  for  the 
Promotion  of  a  Sound  Banking 
System,  276. 

National   Packing   Company,    151. 

Natural  gas,  waste  of,  94. 

Natural  resources,  conservation  of, 
262 ;  wastes  of  through  competi- 
tion, 90. 

Nebraska,  laws  against  combination, 
193. 

Needles,  pins,  hooks,  and  eyes,  sta- 
tistics, 56,  57. 

Nettleton,  A.  B.,  referred  to,  97. 

New  Jersej',  corporation  laws,  70. 

Newlands,  F.  G.,  referred  to,  266, 
267,  268. 

New  Mexico,  laws  against  combina- 
tion,   193. 

New  York,  fixing  of  prices,  256 ; 
general  corporation  act,  21 ;  laws 
against    combination,    193. 

Niagara  Falls,  water  power  developH 
ment,  163. 

Nobel  Dynamite  Trust  Company, 
205. 

North  Carolina,  laws  against  com- 
bination, 192,  193  ;  water  powers, 
163. 

North  Dakota,  laws  against  combina- 
tion, 192,  193 ;   water  powers,  165. 


286 


INDEX 


Northern  Pacific  Railway  Company, 

157. 
Northern  Securities  Company,   180. 

Ohio,  laws  against  combination,  193. 

Oil  producers'  association,  80. 

Oklahoma,  laws  against  combina- 
tion,  193. 

Oregon,  water  powers,   165. 

Organization,  forms  of,  60  ;  influence 
of  statute  law  upon,  60. 

Overbuilding,  a  result  of  competi- 
tion, 17. 

Overcapitalization,  28 ;  American 
Sugar  Refining  Company,  149 ; 
American  Tobacco  Company,  142  ; 
evUs  of,  30 ;  United  States  Steel 
Corporation,  28,  29,  115;  United 
States  Shipbuilding  Company,  29. 

Overproduction,  a  result  of  compe- 
tition, 26. 

Pacific  Gas  and  Electric  Company, 
163. 

Paper  and  wood  pulp,  statistics,  45. 

Patent  control  of,  a  factor  favoring 
concentration,  24  ;  monopoly,  268  ; 
protected  products,  34. 

Pens  and  pencils,  statistics,  58. 

Periodical  Publishing  Company, 
191. 

Perkins,  George  W.,  referred  to,  266, 
268. 

Petroleum,  statistics,  40. 

Pittsburg  Coal  Company,  93. 

Pools,  68,  103. 

Potash  industry,  in  Germany,  218. 

Preferred  industrials,  statistics,  30. 

Prices,  agreements,  81 ;  iron  and  steel, 
133  ;  labor,  86  ;  professional  men, 
86 ;  commission  control  of,  78, 
260,  261 ;  discriminations.  Stand- 
ard Oil  Company,  109 ;  effect  of 
conservation  on,  263 ;  effect  of 
formation  of  United  States  Steel 
Corporation  on,  134 ;  effect  of 
watered  stock  on,  30,  31 ;  excessive, 
limit  to,  84  ;  failure  of  competition 
to  regulate,  78 ;  fall  of,  a  result  of 
competition,  26  ;  fixed  by  corpora- 
tions, 78 ;  fixing  of,  in  Massachu- 
setts and  New  York,  256 ;  main- 
tenance of,  62 ;  irregularity  in,  a 
result  of  competition,  27 ;  monop- 
oly, law  of,  85 ;  monopoly,  Stand- 
ard Oil  Company,  107 ;  public 
utilities   dp   not    compete   in,    78 ; 


regulation  of,  255 ;  regulation  of, 
in  potash  industry  in  Germany, 
218 ;  timber,  159 ;  trusts  do  not 
compete  in,  79 ;  water  powers,  164. 

Printing  and  publishing,  statistics, 
45,  46. 

Promoters,  profits  of,  27. 

Protective  tariff,  a  cause  of  concen- 
tration, 21,  25. 

Pryor,  Roger  A.,  referred  to,  74,  75. 

Public  utilities,  32 ;  and  monopoly, 
32 ;  commission  control,  233 ; 
controlled  by  water  power  inter- 
ests, 164  ;  do  not  compete  in  price, 
78  ;  effect  of  competition  on,  32  ; 
great  producing  corporations  de- 
clared to  be,  249. 

Pure  food  laws,  77,  244  ;  administered 
by  commission,  245 ;  effect  of,  on 
quality,  77. 

Pure  Oil  Company,  106. 

Quality,  competition  in,  72 ;  effect 
of  pure  food  laws  on,  77 ;  failure 
of  competition  to  regulate,  76. 

Railroad  Commission,  234,  235,  236. 

Railroad  Securities  Commission  Re- 
port, 230,  265. 

Railways,  beginning  of,  in  United 
States,  5 ;  discriminations,  106 ; 
effect  of  development  upon  compe- 
tition, 65  ;  extension  of,  5  ;  pools, 
65  ;   violation  of  laws,  98 

Rebates,  22,  24 ;  a  cause  of  concen- 
tration, 24,  25 ;  American  Sugar 
Refining  Company,  150 ;  Standard 
Oil  Company,  107. 

Regrating,  167. 

Regulation,  and  socialism,  242,  262  ; 
objections  to,  270 ;  of  output,  a 
cause  of  concentration,  26 ;  of 
output  in  Germany,  218 ;  of  prices, 
255 ;  of  prices  in  Germany,  218 ; 
of  production,  an  advantage  of 
concentration,  15  ;  only  protection 
for  the  public,  261 ;  resistance  to, 
242. 

Republic  Iron  and  Steel  Company, 
126. 

Retail  trade,  decline  of  competition 
in,  83;   situation  in  England,  204. 

Salesmen,  expense  of,  88 ;  number 
reduced  by  large  scale  production, 
14. 

Salt,  statistics,  41,  43. 


INDEX 


287 


Selling  agencies,  67,  79,  80,  91 ;  ille- 
gal under  Sherman  Law,  179 ;  in 
France,  221. 

Sherman  antitrust  law,  174-192 ; 
amendments,  266 ;  exchange  of 
information  under  ban,  61 ;  fruit 
growers'  associations  in  violation, 
67 ;  holding  corporations  now  be- 
ing attacked  under,  70 ;  prosecu- 
tion of  lumber  associations  under, 
64 ;  prosecution  of  produce  ex- 
changes under,  64  ;  text,  279. 

Shipbuilding,  statistics,  39. 

Silk  manufacture,  statistics,  56. 

Skinner,  D.  E.,  referred  to,  95. 

Slaughter  and  meat  packing,  statis- 
tics, 50,  51 ;   see  Meat. 

Smith,  S.  Morgan,  Company,  103. 

South  Carolina,  laws  against  com- 
bination, 192,  193  ;  water  powers, 
163. 

South  Dakota,  laws  against  combina- 
tion, 192,  193. 

Southern  Pacific  Company,  157. 

Southern  Power  Company,  163. 

Southern  Wholesale  Grocers'  Asso- 
ciation, 64,  188, 

Specialization,  10,  135. 

Spreckles  Company,  148. 

Standardization  of  articles,  33,  74. 

Standard  OU  Company,  104-110; 
capitalization,  105  ;  common  stock, 
29  ;  control  of  pipe  lines,  106,  107  ; 
discriminations  of  railways  in  favor, 
106;  dissolution,  70,  182;  evils, 
110;  example  of  holding  corpora- 
tion, 70  ;  foreign  trade,  15  ;  inves- 
tigating departments,  13 ;  or- 
ganization, 104 ;  prices  at  home 
and  abroad,  22 ;  profits,  85,  109  ; 
scope  of  operations,  105 ;  unfair 
practices,  23,  110. 

Standard  Oil  Trust  of  Ohio,  174. 

Starch,  statistics,  48,  49. 

Steamship  lines,  agreements,  98 ; 
combinations,  223. 

Stock  manipulation,  31 ;  American 
Tobacco  Company,  142  ;  Standard 
Oil  Company,  105 ;  United  States 
Steel  Corporation,  117. 

Stone  &  Webster  Company,  163. 

Sulphur,  waste  of,  95. 

Tariff,  effect  on  combination  in 
England,  205  ;  in  Germany,  217  ; 
in  United  States,  21. 

Telluride  Power  Company,  163. 


Tennessee,  laws  against  combina- 
tion, 192,  193. 

Texas,  laws  against  combination, 
192,  193. 

Timber,  supply,  154 ;  waste,  95 ; 
see  Lumber. 

Tobacco,  situation  in  England,  204 ; 
statistics,  49,  50. 

Trade  commissions,  252. 

Traders'  Live  Stock  Exchange,  177. 

Traer,  G.  W.,  referred  to,  92. 

Trans-Atlantic  steamship    pool,  191. 

Trans-Missouri  case,   178. 

Transportation,  control  by  Standard 
Oil  Company,  106,  107  ;  control  by 
United  States  Steel  Corporation, 
134;  development,  4;  effect  on 
concentration,  7. 

Trusts,  68,  69 ;  do  not  compete  in 
price,  79 ;  early  group,  33 ;  num- 
ber, 35. 

Unfair  practices,  American  Sugar 
Refining  Company,  149 ;  American 
Tobacco  Company,  143-147 ;  Gen- 
eral Electric  Company,  187 ;  ille- 
gal under  Sherman  law,  179 ;  Na- 
tional Cash  Register  Company, 
190;  prohibition  of,  225,  252; 
Standard  OU  Company,  110;  Uni- 
ted Shoe  Machinery  Company, 
189. 

United  Alkali  Company,  205. 

United  Metals  Selling  Company, 
79. 

United  Shoe  Machinery  Company, 
attacked  under  Sherman  law,  189; 
control  of  patents  by,  24 ;  unfair 
practices  of,  189. 

United  States  Shipbuilding  Company, 
29. 

United  States  Steel  Corporation, 
10,  12,  111-140;  attacked  under 
Sherman  law,  189 ;  capacity  and 
resources,  115;  companies  consoli- 
dated to  form,  114;  control  of 
establishments  by,  35 ;  earnings, 
117;  effect  of  on  foreign  trade, 
19;  efficiency  of  capital,  16; 
elimination  of  competition,  26; 
evils,  140 ;  example  of  holding 
corporation,  70;  foreign  trade,  15; 
organization.  111;  overcapitaliza- 
tion, 28,  29,  115;  practices,  132; 
prices  at  home  and  abroad,  22; 
profits  put  back  into  business,  84; 
watering  of  stock,  117. 


288 


INDEX 


United  States  Steel  Export  Com- 
pany,  120. 

Untermej'er,  Samuel,  referred  to, 
83,  95,  98,  99,  185,  268. 

Urdahl,  T.  K.,  referred  to,  207. 

Utah,  laws  against  combination,  192, 
193. 

Vinje,  A.  J.,  referred  to,  250. 
Vinson,  Taylor,  referred  to,  99. 
Von  Halle,  referred  to,  18. 

Walker,  A.  F.,  referred  to,  99,  100. 

Washington,  laws  against  combina- 
tion, 192 ;  water  powers,  162,  163. 

Water  powers,  160-166,  distribu- 
tion and  amount,  160 ;  in  United 
States,    164;     public    control    of. 


164 ;  traffic,  6 ;  elimination  of, 
241. 

Waters-Pierce  Company,  183. 

Westinghouse    Company,    24,    39. 

Weyerhaeuser  Timber  Company,  157. 

Wickersham,  G.  W.,  referred  to, 
248,  249,  261,  267. 

Whisky,  combination,  reduction  of 
salesmen,  14 ;  decisions  under 
Sherman  law,  176 ;  overbuilding, 
17,  27. 

Wisconsin,  commission  control  in, 
236;  laws  in  reference  to  conser- 
vation, 263,  laws  in  reference  com- 
bination, 193;  railroad  commission, 
236;  water  powers  of,  165. 

Wyoming,  laws  against  combination, 
192  ;  water  powers,  of,  165. 


"T^HE  following  pages  contain  advertisements  of  a  few  of  the 
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IIL  election;  covers  the  period  of  actual  secession;  the  dramatic  opening  of 

1860-1862     the  war,  the  almost  light-hearted  acceptance  of  it  as  a  "  three-months'  pic- 
nic "  ;  and  closes  in  the  sobering  defeat  of  Bull  Run. 

IV.  The  fourth  volume  follows  the  progress  of  the  war  in  vivid  discussions  of 

1862-1864     campaigns,  battles,  the  patient  search  for  the  right  commander,  and  the 
attitude  toward  this  country  of  the  British  government  and  people. 

The  fifth  volume  opens  with  the  account  of  Sherman's  march  to  the  sea. 

Y  The  adoption  of  the  Thirteenth  Amendment,  Lincoln's  assassination,  John- 

*  «(V;     so^'s  administration,  and  the  state  of  society  in  the  North  and  South  at  the 

1804-1800     gjj(j  Qf  ti^g  exhausting  war  are  fully  treated.     The  volume  ends  with  an 

account  of  the  political  campaign  of  1866. 

The  sixth  volume  considers  the  enactment  of  the  Reconstruction  Acts  and 

VI.  their  execution;  the  impeachment  of  President  Johnson,  the  rise  of  the 

ifififi-iST?      ^^  Klux  Klan,  the  operation  of  the  Freedman's  Bureau,  the  ratification 

"~     '       of  the  XlVth  and  the  passage  of  the  XVth  Amendment,  are  among  other 

topics  in  the  volume. 

The   seventh   volume   begins  with   an   account  of  the   Credit  Mobilier 

Vn.  scandal,  the  "Salary  Grab"  Act,  and  describes  the  financial  panic  of 

1872-1877      ^^7'i-     T'^^  account  of  Reconstruction  is  continued  with  a  careful  summing 

'         ''      up,  and  the  work  ends  with  an  account  of  the  presidential  campaign  of 

1876  and  the  disputed  Presidency. 

The  set  in  cloth,  $iy.jo;   half  calf  or  morocco,  $J2; 
three-quarters  levant,  $40. 


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GAYLORD 

PRINTED  IN  U.S.A. 

1970  00632  2561 


